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TCW DIRECT LENDING LLC

Date Filed : Aug 12, 2019

10-Q1d754673d10q.htmFORM 10-QForm 10-Q
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

 

FORM 10-Q

 

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended June 30, 2019

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the transition period from                 to                

Commission file number 814-01069

 

 

TCW DIRECT LENDING LLC

(Exact Name of Registrant as Specified in Its Charter)

 

 

 

Delaware 46-5327366

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

200 Clarendon Street, Boston, MA 02116
(Address of Principal Executive Offices) (Zip Code)

Registrant’s Telephone Number, Including Area Code:(617) 936-2275

Not applicable

Former Name, Former Address and Former Fiscal Year, If Changed Since Last Report.

 

 

Securities registered pursuant to Section 12(b) of the Act.

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange

on which registered

                                      

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d)of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past90 days.    Yes  ☒    No  ☐

Indicate by check mark whether the registranthas submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorterperiod that the registrant was required to submit such files).    Yes  ☐    No  ☐

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-acceleratedfiler, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer   Accelerated filer 
Non-Accelerated filer   Smaller reporting company 
Emerging growth company    

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition periodfor complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the SecuritiesExchange Act of 1934).    Yes  ☐    No  ☒

The number of the Registrant’scommon units outstanding at August 12, 2019 was 20,134,698.

 

 

 


Table of Contents

TCW DIRECT LENDING LLC

FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2019

Table of Contents

 

   

INDEX

  PAGE
NO.
 
PART I.  FINANCIAL INFORMATION  
Item 1.  Financial Statements  
  Consolidated Schedules of Investments as of June 30, 2019 (unaudited) and December 31, 2018   2 
  Consolidated Statements of Assets and Liabilities as of June 30, 2019 (unaudited) and December 31, 2018   12 
  Consolidated Statements of Operations for the three and six months ended June 30, 2019 and 2018 (unaudited)   13 
  Consolidated Statements of Changes in Members’ Capital for the three and six months ended June 30, 2019 and 2018 (unaudited)   14 
  Consolidated Statements of Cash Flows for the six months ended June 30, 2019 and 2018 (unaudited)   15 
  Notes to Consolidated Financial Statements (unaudited)   16 
Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations   32 
Item 3.  Quantitative and Qualitative Disclosures About Market Risk   42 
Item 4.  Controls and Procedures   42 
PART II.  OTHER INFORMATION  
Item 1.  Legal Proceedings   42 
Item 1A.  Risk Factors   42 
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds   43 
Item 3.  Defaults Upon Senior Securities   43 
Item 4.  Mine Safety Disclosures   43 
Item 5.  Other Information   43 
Item 6.  Exhibits   44 

SIGNATURES

   45 

 

1


Table of Contents

TCW DIRECT LENDING LLC

Consolidated Schedule of Investments (Unaudited)

As of June 30, 2019

 

Industry

  

Issuer

  Acquisition
Date
  

Investment

  % of Net
Assets
  Par
Amount
   Maturity
Date
   Amortized
Cost
   Fair Value 
  Non-Controlled/Non-Affiliated Investments Debt             

Auto Components

               
  Challenge Manufacturing Company LLC  04/20/17  Term Loan - 8.91%
(LIBOR + 6.50%, 1.00% Floor)
   5.8 $48,585,884    04/20/22   $47,972,865   $47,711,338 
        

 

 

  

 

 

     

 

 

   

 

 

 
         5.8  48,585,884      47,972,865    47,711,338 
        

 

 

  

 

 

     

 

 

   

 

 

 

Chemicals

               
  Ascensus Specialties LLC (fka Vertellus Performance Chemicals LLC)(1)  09/22/17  First Lien Term Loan - 9.16%
(LIBOR + 6.75%, 1.25% Floor)
   4.9  40,880,237    09/22/22    40,253,359    40,880,237 
        

 

 

  

 

 

     

 

 

   

 

 

 
         4.9  40,880,237      40,253,359    40,880,237 
        

 

 

  

 

 

     

 

 

   

 

 

 

Commercial Services & Supplies

               
  School Specialty, Inc.  04/07/17  Delayed Draw Term Loan - 11.41% inc. PIK
(LIBOR + 8.00%, 1.00% Floor, 1.00% PIK)
   0.6  5,284,629    04/07/22    5,284,629    4,872,428 
  School Specialty, Inc.  04/07/17  Term Loan A - 10.41% inc. PIK
(LIBOR + 8.00%, 1.00% Floor, 1.00% PIK)
   4.3  38,345,478    04/07/22    37,846,252    35,354,531 
        

 

 

  

 

 

     

 

 

   

 

 

 
         4.9  43,630,107      43,130,881    40,226,959 
        

 

 

  

 

 

     

 

 

   

 

 

 

Construction & Engineering

               
  Intren, LLC  07/18/17  Term Loan - 9.19%
(LIBOR + 6.75%, 1.25% Floor)
   1.0  10,833,598    07/18/23    10,687,503    7,865,192 
        

 

 

  

 

 

     

 

 

   

 

 

 
         1.0  10,833,598      10,687,503    7,865,192 
        

 

 

  

 

 

     

 

 

   

 

 

 

Distributors

               
  ASC Acquisition Holdings, LLC  02/25/19  Term Loan - 12.59% inc. PIK
(LIBOR + 7.50%, 1.00% Floor, 2.50% PIK)
   2.5  22,890,311    02/22/22    22,037,676    20,578,390 
        

 

 

  

 

 

     

 

 

   

 

 

 
         2.5  22,890,311      22,037,676    20,578,390 
        

 

 

  

 

 

     

 

 

   

 

 

 

Diversified Financial Services

               
  Carrier & Technology Holdings, LLC  07/02/18  Term Loan - 11.75%
(11.75%, Fixed Coupon, all PIK)
   0.0  40,229,583    07/02/23    40,077,214    —   
  Carrier & Technology Solutions, LLC(1)  07/02/18  Revolver - 9.69%
(LIBOR + 7.25%, 1.50% Floor, all PIK)
   1.0  7,966,129    07/02/23    7,966,129    7,966,129 
  Carrier & Technology Solutions, LLC  07/02/18  Term Loan - 9.69%
(LIBOR + 7.25%, 1.50% Floor, all PIK)
   0.9  11,604,434    07/02/23    11,559,628    7,774,971 
        

 

 

  

 

 

     

 

 

   

 

 

 
         1.9  19,570,563      19,525,757    15,741,100 
        

 

 

  

 

 

     

 

 

   

 

 

 
  Verus Analytics, LLC (fka Verus Financial, LLC)  04/11/16  First Lien Term Loan - 9.58%
(LIBOR + 7.25%, 0.75% Floor)
   1.9  16,078,125    04/12/21    15,963,672    16,078,125 
        

 

 

  

 

 

     

 

 

   

 

 

 
         3.8  75,878,271      75,566,643    31,819,225 
        

 

 

  

 

 

     

 

 

   

 

 

 

Food Products

               
  Bumble Bee Holdings, Inc.  08/15/17  Term Loan B1 - 10.52%
(LIBOR + 8.00%, 1.00% Floor)
   3.8  32,747,017    08/15/23    32,294,985    31,273,401 

 

2


Table of Contents

TCW DIRECT LENDING LLC

Consolidated Schedule of Investments (Unaudited) (Continued)

As of June 30, 2019

 

 

Industry

  

Issuer

  Acquisition
Date
   

Investment

  % of Net
Assets
  Par
Amount
   Maturity
Date
   Amortized
Cost
   Fair Value 

Food Products (con’t)

               
  Connors Bros. Clover Leaf Seafoods Company (Canada) (an affiliate of Bumble Bee Holdings, Inc.)(2)   08/15/17   Term Loan B2 - 10.52%
(LIBOR + 8.00%, 1.00% Floor)
   1.1 $9,277,783    08/15/23   $9,149,714   $8,860,283 
  Harvest Hill Beverage Company   05/01/17   Term Loan A1 - 8.91%
(LIBOR + 6.50%, 1.00% Floor)
   8.1  67,753,291    01/19/21    67,437,211    67,346,771 
        

 

 

  

 

 

     

 

 

   

 

 

 
         13.0  109,778,091      108,881,910    107,480,455 
        

 

 

  

 

 

     

 

 

   

 

 

 

Health Care Providers & Services

               
  Help at Home, LLC(1),(3)   08/03/15   Term Loan B - 9.19%
(LIBOR + 6.75%, 1.25% Floor)
   5.5  45,305,693    08/03/20    45,117,947    45,532,222 
        

 

 

  

 

 

     

 

 

   

 

 

 
         5.5  45,305,693      45,117,947    45,532,222 
        

 

 

  

 

 

     

 

 

   

 

 

 

Hotels, Restaurants & Leisure

               
  FQSR, LLC(1)   05/14/18   Delayed Draw Term Loan - 7.96%
(LIBOR + 5.50%, 1.00% Floor)
   0.7  5,359,807    05/14/23    5,359,807    5,365,167 
  FQSR, LLC   05/14/18   Term Loan - 8.03%
(LIBOR + 5.50%, 1.00% Floor)
   2.9  24,323,657    05/14/23    23,703,862    24,347,981 
        

 

 

  

 

 

     

 

 

   

 

 

 
         3.6  29,683,464      29,063,669    29,713,148 
        

 

 

  

 

 

     

 

 

   

 

 

 
  OTG Management, LLC   06/30/16   Delayed Draw Term Loan - 9.51%
(LIBOR + 7.00%, 1.00% Floor)
   2.2  18,546,807    08/26/21    18,472,302    18,546,807 
  OTG Management, LLC   06/30/16   Term Loan - 9.59%
(LIBOR + 7.00%, 1.00% Floor)
   7.1  58,502,243    08/26/21    57,997,958    58,502,243 
        

 

 

  

 

 

     

 

 

   

 

 

 
         9.3  77,049,050      76,470,260    77,049,050 
        

 

 

  

 

 

     

 

 

   

 

 

 
  Ruby Tuesday, Inc.(1)   12/21/17   Term Loan - 14.33% inc. PIK
(LIBOR + 8.00%, 1.00% Floor, 2.00% PIK)
   3.0  25,620,000    12/21/22    24,671,105    24,672,060 
        

 

 

  

 

 

     

 

 

   

 

 

 
         15.9  132,352,514      130,205,034    131,434,258 
        

 

 

  

 

 

     

 

 

   

 

 

 

Household Durables

               
  Cedar Electronics Holdings, Corp.   01/03/19   Incremental Term Loan - 15.00%
(15.00% , Fixed Coupon, all PIK)
   0.3  2,542,752    06/26/20    2,542,751    2,446,127 
  Cedar Electronics Holdings, Corp.   05/19/15   Term Loan - 10.43%
(LIBOR + 8.00%, 1.50% Floor)
   2.3  19,611,733    06/26/20    19,521,432    18,866,487 
        

 

 

  

 

 

     

 

 

   

 

 

 
         2.6  22,154,485      22,064,183    21,312,614 
        

 

 

  

 

 

     

 

 

   

 

 

 

Industrial Conglomerates

               
  H-D Advanced Manufacturing Company(3)   06/30/15   First Lien Last Out Term Loan - 10.83% inc. PIK
(LIBOR + 7.00%, 1.00% Floor, 1.50% PIK)
   12.2  104,239,834    12/31/21    103,778,229    100,904,159 
        

 

 

  

 

 

     

 

 

   

 

 

 
         12.2  104,239,834      103,778,229    100,904,159 
        

 

 

  

 

 

     

 

 

   

 

 

 

Information Technology Services

               
  ENA Holding Corporation   05/06/16   First Lien Term Loan - 10.02%
(LIBOR + 5.00%, 1.00% Floor, 2.50% PIK)
   5.1  43,722,988    05/06/21    43,322,368    42,280,129 
  ENA Holding Corporation   05/06/16   Revolver - 9.92%
(LIBOR + 7.50%, 1.00% Floor)
   0.9  8,017,382    05/06/21    8,017,382    7,752,809 
        

 

 

  

 

 

     

 

 

   

 

 

 
         6.0  51,740,370      51,339,750    50,032,938 
        

 

 

  

 

 

     

 

 

   

 

 

 

 

3


Table of Contents

TCW DIRECT LENDING LLC

Consolidated Schedule of Investments (Unaudited) (Continued)

As of June 30, 2019

 

Industry

  

Issuer

  Acquisition
Date
  

Investment

  % of Net
Assets
  Par
Amount
   Maturity
Date
  Amortized
Cost
   Fair Value 

Internet & Direct Marketing Retail

               
  Lulu’s Fashion Lounge, LLC  08/28/17  First Lien Term Loan - 11.40% (LIBOR + 9.00%, 1.00% Floor)   1.5 $12,846,641   08/28/22  $12,602,028   $12,692,481 
        

 

 

  

 

 

     

 

 

   

 

 

 
         1.5  12,846,641      12,602,028    12,692,481 
        

 

 

  

 

 

     

 

 

   

 

 

 

Metals & Mining

               
  Pace Industries, Inc.  06/30/15  First Lien Term Loan - 10.85% inc. PIK
(LIBOR + 8.25%, 1.00% Floor, 0.50% PIK)
   10.0  83,668,105   06/30/20   83,426,536    82,915,092 
        

 

 

  

 

 

     

 

 

   

 

 

 
         10.0  83,668,105      83,426,536    82,915,092 
        

 

 

  

 

 

     

 

 

   

 

 

 

Pharmaceuticals

               
  Noramco, LLC(3)  07/01/16  Senior Term Loan - 10.98% inc. PIK
(LIBOR + 8.00%, 1.00% Floor, 0.375% PIK)
   3.8  51,087,250   07/01/21   50,816,438    31,214,310 
        

 

 

  

 

 

     

 

 

   

 

 

 
         3.8  51,087,250      50,816,438    31,214,310 
        

 

 

  

 

 

     

 

 

   

 

 

 

Software

               
  Quicken Parent Corp.(1)  04/01/16  First Lien Term Loan - 11.44% inc. PIK
(LIBOR + 8.50%, 1.00% Floor, 0.50% PIK)
   2.4  21,048,075   04/01/21   20,989,849    20,227,200 
        

 

 

  

 

 

     

 

 

   

 

 

 
         2.4  21,048,075      20,989,849    20,227,200 
        

 

 

  

 

 

     

 

 

   

 

 

 

Textiles, Apparel & Luxury Goods

               
  Frontier Spinning Mills, Inc.  04/18/19  Incremental Term Loan B - 10.66%
(LIBOR + 8.25%, 1.00% Floor)
   0.0  2,289,516   04/29/23   2,284,992    412,113 
  Frontier Spinning Mills, Inc.  04/18/19  Last Out Revolver - 7.75%
(PRIME + 2.25%, 1.00% Floor)
   0.3  2,268,366   04/29/23   2,268,366    2,268,366 
  Frontier Spinning Mills, Inc.  02/21/19  Last Out Revolver - 5.87%
(LIBOR + 3.25%, 1.00% Floor)
   0.1  750,000   04/30/20   750,000    750,000 
  Frontier Spinning Mills, Inc.(3)  05/19/15  Last Out Term Loan B - 11.14% (LIBOR + 8.25%, 1.00% Floor, all PIK)   0.3  13,672,759   04/30/20   13,651,335    2,461,096 
        

 

 

  

 

 

     

 

 

   

 

 

 
         0.7  18,980,641      18,954,693    5,891,575 
        

 

 

  

 

 

     

 

 

   

 

 

 
  Total Debt Investments   96.5      887,825,524    798,718,645 
        

 

 

      

 

 

   

 

 

 
   Equity           Shares            

Distributors

               
  Animal Supply Holdings, LLC    Class A   0.0  9,807      708,537    78,545 
        

 

 

  

 

 

     

 

 

   

 

 

 
         0.0  9,807      708,537    78,545 
        

 

 

  

 

 

     

 

 

   

 

 

 

Diversified Financial Services

               
  Carrier & Technology Holdings,
LLC(4),(5)
    Common Stock   0.0  2,143      —      —   
  Verus Financial, LLC(6)    Common Stock   1.0  8,750      7,640,647    8,338,580 
        

 

 

  

 

 

     

 

 

   

 

 

 
         1.0  10,893      7,640,647    8,338,580 
        

 

 

  

 

 

     

 

 

   

 

 

 

Hotels, Restaurants & Leisure

               
  RTI Holding Company, LLC (an affiliate of Ruby Tuesday, Inc.)(4)    Warrant, expires 12/21/27   0.1  1,470,632      1,379,747    820,977 
        

 

 

  

 

 

     

 

 

   

 

 

 
         0.1  1,470,632      1,379,747    820,977 
        

 

 

  

 

 

     

 

 

   

 

 

 

 

4


Table of Contents

TCW DIRECT LENDING LLC

Consolidated Schedule of Investments (Unaudited) (Continued)

As of June 30, 2019

 

Industry

 

Issuer

 Acquisition
Date
  

Investment

 % of Net
Assets
  Shares  Maturity
Date
  Amortized
Cost
  Fair Value 

Household Durables

        
 Cedar Ultimate Parent LLC(4)  Common Stock  0.0  300,000   $—    $—   
 Cedar Ultimate Parent LLC(4)  Preferred Stock  0.0  9,297,990    9,187,900   —   
 Cedar Ultimate Parent LLC(4)  Preferred Stock  0.0  2,900,000    —     —   
    

 

 

  

 

 

   

 

 

  

 

 

 
     0.0  12,497,990    9,187,900   —   
    

 

 

  

 

 

   

 

 

  

 

 

 

Technologies Hardware, Storage and Peripherals

        
 Quantum Corporation(4)  Common Stock  0.2  391,945    1,708,311   1,038,654 
 Quantum Corporation(4)  Warrant, expires 10/31/23  0.1  900,045    1,192,100   960,017 
 Quantum Corporation(4),(7)  Warrant, expires 11/30/23  0.1  450,022    596,050   480,009 
 Quantum Corporation(4)  Warrant, expires 9/30/23  0.1  900,045    1,217,214   960,017 
 Quantum Corporation(4)  Warrant, expires 9/7/23  0.1  900,045    1,143,057   960,017 
    

 

 

  

 

 

   

 

 

  

 

 

 
     0.6  3,542,102    5,856,732   4,398,714 
    

 

 

  

 

 

   

 

 

  

 

 

 

Textiles, Apparel & Luxury Goods

        
 ASP Frontier Holdings, Inc.(4)  Warrant, expires 5/15/23  0.0  18,300    1,250   —   
 ASP Frontier Holdings, Inc.(4)  Warrant, expires 5/15/23  0.0  69,724    5,073   —   
    

 

 

  

 

 

   

 

 

  

 

 

 
     0.0  88,024    6,323   —   
    

 

 

  

 

 

   

 

 

  

 

 

 
 Total Equity Investments    1.7    24,779,886   13,636,816 
    

 

 

    

 

 

  

 

 

 
 Total Non-Controlled/Non-Affiliated Investments*  98.2   $912,605,410  $812,355,461 
    

 

 

    

 

 

  

 

 

 
                  Cost    
 Controlled/Affiliated Investments

 

Investment Funds & Vehicles

        
 TCW Direct Lending Strategic Ventures LLC(2),(8)  Preferred membership interests  28.5  261,154    235,200,003   235,932,619 
 TCW Direct Lending Strategic Ventures LLC(2),(8)  Common membership interests  0.0  800    —     —   
    

 

 

    

 

 

  

 

 

 
 Total Controlled/Affiliated Investments  28.5   $235,200,003  $235,932,619 
    

 

 

    

 

 

  

 

 

 
 Cash Equivalents       
 Blackrock Liquidity Funds, Yield 2.29%    6.4  52,787,949    52,787,949   52,787,949 
    

 

 

  

 

 

   

 

 

  

 

 

 
 Total Investments 133.1%      $1,200,593,362  $1,101,076,029 
       

 

 

  

 

 

 
 Net unrealized depreciation on unfunded commitments (0.0%)    $(51,901
        

 

 

 
 Liabilities in Excess of Other Assets (33.1%)    $(273,594,792
        

 

 

 
 Net Assets 100.0%    $827,429,336 
        

 

 

 

 

5


Table of Contents

TCW DIRECT LENDING LLC

Consolidated Schedule of Investments (Unaudited) (Continued)

As of June 30, 2019

 

*

The fair value of the Quantum Corporation Common Stock held by the Company represents the quoted market price asof June 30, 2019 and is considered to be a Level 1 security within the Fair Value Hierarchy. The fair value of each non-controlled/non-affiliated investmentwas determined using significant unobservable inputs and is considered to be Level 3 within the Fair Value Hierarchy. See Note 3 “Investment Valuations and Fair Value Measurements.”

(1)

Excluded from the investment above, is an unfunded loan commitment for a delayed draw term loan or revolvingcredit. The Company earns an unused fee on the unfunded commitment during the commitment period. The expiration date of the commitment period may be earlier than the maturity date of the investment stated above. See Note 5—Commitments andContingencies.

(2)

The investment is not a qualifying asset as defined in Section 55(a) under the Investment Company Act of1940, as amended. A business development company may not acquire an asset other than qualifying assets, unless, at the time the acquisition is made, qualifying assets represent at least 70% of the company’s total assets. As of June 30,2019, $244,792,902 or 21.4% of the Company’s total assets were represented by “non-qualifying assets.”

(3)

In addition to the interest earned based on the stated interest rate of this loan, the Company is entitled toreceive an additional interest amount on the “first out” tranche of the portfolio company’s first lien senior secured loans.

(4)

Non-income producing.

(5)

Holdings of Carrier & Technology Holdings, LLC common stock are held through TCW DL CTH LLC, a specialpurpose vehicle.

(6)

Holdings of Verus Financial, LLC common stock are held through TCW DL VF Holdings, Inc., a special purposevehicle.

(7)

Fair value was reduced by 50% to represent the Company’s obligation to sell 50% of this investment back toQuantum for a nominal amount.

(8)

As defined in the Investment Company Act of 1940, the investment is deemed to be a “controlled affiliatedperson” of the Company because the Company owns, either directly or indirectly, 25% or more of the portfolio company’s outstanding voting securities or has the power to exercise control over management or policies of such portfoliocompany.

LIBOR - London Interbank Offered Rate, generally 1-Month or 3-Month

Prime - Prime Rate

Aggregate acquisitions and aggregate dispositions of investments, other than government securities, totaled $24,243,645 and $49,126,874,respectively, for the period ended June 30, 2019. Aggregate acquisitions includes investment assets received as payment in kind. Aggregate dispositions includes principal paydowns on and maturities of debt investments.

 

Country Breakdown of Portfolio

    

United States

   99.2

Canada

   0.8

See Notes to Consolidated Financial Statements.

 

6


Table of Contents

TCW DIRECT LENDING LLC

Consolidated Schedule of Investments

As of December 31, 2018

 

Industry

  

Issuer

  Acquisition
Date
   

Investment

  % of Net
Assets
  Par Amount   Maturity
Date
   Amortized
Cost
   Fair Value 
  Non-Controlled/Non-Affiliated Investments Debt             

Auto Components

               
  Challenge Manufacturing Company LLC   04/20/17   Term Loan—9.03% (LIBOR + 6.50%, 1.00% Floor)   5.4 $49,954,501    04/20/22   $49,212,783   $49,454,956 
        

 

 

  

 

 

     

 

 

   

 

 

 
         5.4  49,954,501      49,212,783    49,454,956 
        

 

 

  

 

 

     

 

 

   

 

 

 

Chemicals

               
  Ascensus Specialties LLC (fka Vertellus Performance Chemicals LLC)(1)   09/22/17   First Lien Term Loan—9.28% (LIBOR + 6.75%, 1.25% Floor)   4.6  41,496,364    09/22/22    40,762,340    41,620,853 
        

 

 

  

 

 

     

 

 

   

 

 

 
         4.6  41,496,364      40,762,340    41,620,853 
        

 

 

  

 

 

     

 

 

   

 

 

 

Commercial
Services & Supplies

               
  School Specialty, Inc.   04/07/17   Delayed Draw Term Loan—9.53% (LIBOR + 7.00%, 1.00% Floor)   0.6  5,467,476    04/07/22    5,467,476    5,150,362 
  School Specialty, Inc.   04/07/17   Term Loan A—9.51% (LIBOR + 7.00%, 1.00% Floor)   4.0  39,259,771    04/07/22    38,654,010    36,982,704 
        

 

 

  

 

 

     

 

 

   

 

 

 
         4.6  44,727,247      44,121,486    42,133,066 
        

 

 

  

 

 

     

 

 

   

 

 

 

Construction &
Engineering

               
  Intren, LLC   07/18/17   Term Loan—9.10% (LIBOR + 6.75%, 1.25% Floor)   1.0  13,196,154    07/18/23    12,996,406    9,382,465 
        

 

 

  

 

 

     

 

 

   

 

 

 
         1.0  13,196,154      12,996,406    9,382,465 
        

 

 

  

 

 

     

 

 

   

 

 

 

Distributors

               
  ASC Acquisition Holdings, LLC   12/16/16   First Lien Term Loan—10.03% (LIBOR + 7.50%, 1.00% Floor)   2.4  24,096,797    12/15/21    23,811,851    21,614,827 
  ASC Acquisition Holdings, LLC   12/17/18   Term Loan—10.29% (LIBOR + 7.50%, 1.00% Floor)   0.3  3,154,908    12/15/21    3,091,810    3,154,908 
        

 

 

  

 

 

     

 

 

   

 

 

 
         2.7  27,251,705      26,903,661    24,769,735 
        

 

 

  

 

 

     

 

 

   

 

 

 

Diversified Financial Services

               
  Carrier & Technology Holdings, LLC   07/02/18   Term Loan—11.75% (11.75%, Fixed Coupon, all PIK)   0.6  37,896,029    07/02/23    37,724,796    5,229,652 
  Carrier & Technology Solutions,
LLC(1)
   07/02/18   Revolver—9.71% (LIBOR + 7.25%, 1.50% Floor, all PIK)   0.8  7,198,078    07/02/23    7,198,078    7,198,078 
  Carrier & Technology Solutions, LLC   07/02/18   Term Loan—9.60% (LIBOR + 7.25%, 1.50% Floor, all PIK)   1.2  11,147,081    07/02/23    11,096,219    11,147,081 
        

 

 

  

 

 

     

 

 

   

 

 

 
         2.0  18,345,159      18,294,297    18,345,159 
        

 

 

  

 

 

     

 

 

   

 

 

 
  Verus Analytics, LLC (fka Verus Financial, LLC)   04/11/16   First Lien Term Loan—10.00% (PRIME + 4.50%, 3.50% Floor)   1.8  16,296,875    04/12/21    16,148,606    16,296,875 
        

 

 

  

 

 

     

 

 

   

 

 

 
         4.4  72,538,063      72,167,699    39,871,686 
        

 

 

  

 

 

     

 

 

   

 

 

 

 

7


Table of Contents

TCW DIRECT LENDING LLC

Consolidated Schedule of Investments (Continued)

As of December 31, 2018

 

Industry

  

Issuer

  Acquisition
Date
  

Investment

  % of Net
Assets
  Par Amount   Maturity
Date
  Amortized
Cost
   Fair Value 

Diversified Telecommunication Services

               
  Alaska Communications Systems Holdings, Inc.  05/08/18  Term Loan A1—7.52% (LIBOR + 5.00%, 1.00% Floor)   0.1 $1,386,161   03/13/22  $1,386,505   $1,386,161 
  Alaska Communications Systems Holdings, Inc.  03/28/17  Term Loan A2—9.52% (LIBOR + 7.00%, 1.00% Floor)   1.8  16,060,982   03/13/23   15,893,682    16,060,982 
        

 

 

  

 

 

     

 

 

   

 

 

 
         1.9  17,447,143      17,280,187    17,447,143 
        

 

 

  

 

 

     

 

 

   

 

 

 

Food Products

               
  Bumble Bee Holdings, Inc.  08/15/17  Term Loan B1—10.65% (LIBOR + 8.00%, 1.00% Floor)   3.4  32,913,669   08/15/23   32,404,728    31,432,554 
  Connors Bros. Clover Leaf Seafoods Company (Canada) (an affiliate of Bumble Bee Holdings, Inc.)(2)  08/15/17  Term Loan B2—10.65% (LIBOR + 8.00%, 1.00% Floor)   1.0  9,324,998   08/15/23   9,180,807    8,905,373 
  Harvest Hill Beverage Company  01/20/16  Term Loan A1—9.03% (LIBOR + 6.50%, 1.00% Floor)   8.1  74,703,910   01/19/21   74,244,287    73,732,760 
        

 

 

  

 

 

     

 

 

   

 

 

 
         12.5  116,942,577      115,829,822    114,070,687 
        

 

 

  

 

 

     

 

 

   

 

 

 

Health Care Providers & Services

               
  Help at Home, LLC(1)(3)  08/03/15  Term Loan B—9.10% (LIBOR + 6.75%, 1.25% Floor)   4.1  37,602,990   08/03/20   37,413,881    37,791,005 
        

 

 

  

 

 

     

 

 

   

 

 

 
         4.1  37,602,990      37,413,881    37,791,005 
        

 

 

  

 

 

     

 

 

   

 

 

 

Hotels, Restaurants & Leisure

               
  FQSR, LLC(1)  05/14/18  Delayed Draw Term Loan—8.39% (LIBOR + 5.50%, 1.00% Floor)   0.6  5,359,807   05/14/23   5,359,807    5,290,130 
  FQSR, LLC  05/14/18  Term Loan—8.12% (LIBOR + 5.50%, 1.00% Floor)   2.6  24,446,504   05/14/23   23,743,784    24,128,699 
        

 

 

  

 

 

     

 

 

   

 

 

 
         3.2  29,806,311      29,103,591    29,418,829 
        

 

 

  

 

 

     

 

 

   

 

 

 
  OTG Management, LLC  06/30/16  Delayed Draw Term Loan—9.58% (LIBOR + 7.00%, 1.00% Floor)   2.0  18,546,807   08/26/21   18,455,167    18,416,979 
  OTG Management, LLC  06/30/16  Term Loan—9.47% (LIBOR + 7.00%, 1.00% Floor)   6.4  58,502,243   08/26/21   57,881,978    58,092,727 
        

 

 

  

 

 

     

 

 

   

 

 

 
         8.4  77,049,050      76,337,145    76,509,706 
        

 

 

  

 

 

     

 

 

   

 

 

 
  Ruby Tuesday, Inc.(1)  12/21/17  Term Loan—12.80% inc. PIK (LIBOR + 8.00%, 1.00% Floor, 2.00% PIK)   3.4  33,305,611   12/21/22   31,876,363    31,207,358 
        

 

 

  

 

 

     

 

 

   

 

 

 
         15.0  140,160,972      137,317,099    137,135,893 
        

 

 

  

 

 

     

 

 

   

 

 

 

Household Durables

               
  Cedar Electronics Holdings, Corp.  05/19/15  Term Loan—10.34% (LIBOR + 8.00%, 1.50% Floor)   1.9  19,200,000   06/26/20   19,018,034    17,683,200 
        

 

 

  

 

 

     

 

 

   

 

 

 
         1.9  19,200,000      19,018,034    17,683,200 
        

 

 

  

 

 

     

 

 

   

 

 

 

 

8


Table of Contents

TCW DIRECT LENDING LLC

Consolidated Schedule of Investments (Continued)

As of December 31, 2018

 

Industry

  

Issuer

  Acquisition
Date
  

Investment

  % of Net
Assets
  Par Amount   Maturity
Date
  Amortized
Cost
   Fair Value 

Industrial Conglomerates

               
  H-D Advanced Manufacturing Company  06/30/15  First Lien Last Out Term Loan—13.30% inc. PIK (LIBOR + 7.00%, 1.00% Floor, 3.50% PIK)   11.3 $105,769,165   12/31/21  $105,201,819   $103,442,243 
        

 

 

  

 

 

     

 

 

   

 

 

 
         11.3  105,769,165      105,201,819    103,442,243 
        

 

 

  

 

 

     

 

 

   

 

 

 

Information Technology Services

               
  ENA Holding Corporation  05/06/16  First Lien Term Loan—9.53% (LIBOR + 7.00%, 1.00% Floor)   4.7  44,302,885   05/06/21   43,790,131    43,062,404 
  ENA Holding Corporation(1)  05/06/16  Revolver—9.79%
(LIBOR + 7.00%, 1.00% Floor)
   0.7  6,405,720   05/06/21   6,405,720    6,226,360 
        

 

 

  

 

 

     

 

 

   

 

 

 
         5.4  50,708,605      50,195,851    49,288,764 
        

 

 

  

 

 

     

 

 

   

 

 

 

Internet & Direct Marketing Retail

               
  Lulu’s Fashion Lounge, LLC  08/28/17  First Lien Term Loan—9.52% (LIBOR + 7.00%, 1.00% Floor)   1.5  13,401,172   08/28/22   13,105,965    13,535,184 
        

 

 

  

 

 

     

 

 

   

 

 

 
         1.5  13,401,172      13,105,965    13,535,184 
        

 

 

  

 

 

     

 

 

   

 

 

 

Metals & Mining

               
  Pace Industries, Inc.  06/30/15  First Lien Term Loan—11.06% (LIBOR + 8.25%, 1.00% Floor)   9.1  84,118,105   06/30/20   83,754,730    83,108,688 
        

 

 

  

 

 

     

 

 

   

 

 

 
         9.1  84,118,105      83,754,730    83,108,688 
        

 

 

  

 

 

     

 

 

   

 

 

 

Pharmaceuticals

               
  Noramco, LLC(3)  07/01/16  Senior Term Loan—10.40% (LIBOR + 8.00%, 1.00% Floor)   5.0  51,289,164   07/01/21   50,949,495    45,955,091 
        

 

 

  

 

 

     

 

 

   

 

 

 
         5.0  51,289,164      50,949,495    45,955,091 
        

 

 

  

 

 

     

 

 

   

 

 

 

Software

               
  Quicken Parent Corp.(1)  04/01/16  First Lien Term Loan—11.35% inc. PIK (LIBOR + 8.50%, 1.00% Floor, 0.50% PIK)   2.3  21,769,443   04/01/21   21,691,954    20,680,971 
        

 

 

  

 

 

     

 

 

   

 

 

 
         2.3  21,769,443      21,691,954    20,680,971 
        

 

 

  

 

 

     

 

 

   

 

 

 

Textiles, Apparel & Luxury Goods

               
  Frontier Spinning Mills, Inc.(3)  05/19/15  Last Out Term Loan B—10.78% (LIBOR + 8.25%, 1.00% Floor)   0.8  12,960,042   04/30/20   12,925,853    7,192,823 
        

 

 

  

 

 

     

 

 

   

 

 

 
         0.8  12,960,042      12,925,853    7,192,823 
        

 

 

  

 

 

     

 

 

   

 

 

 
  Total Debt Investments       93.5      910,849,065    854,564,453 
        

 

 

      

 

 

   

 

 

 
   Equity           Shares            

Diversified Financial Services

               
  Carrier & Technology Holdings, LLC(7)    Common Stock   0.0  2,143      —      —   

 

9


Table of Contents

TCW DIRECT LENDING LLC

Consolidated Schedule of Investments (Continued)

As of December 31, 2018

 

 

Industry

  

Issuer

  Acquisition
Date
   

Investment

  % of Net
Assets
  Shares   Maturity
Date
   Amortized
Cost
   Fair Value 
  Verus Financial, LLC(4)    Common Stock   0.9  8,750     $7,640,647   $8,738,810 
        

 

 

  

 

 

     

 

 

   

 

 

 
         0.9  10,893      7,640,647    8,738,810 
        

 

 

  

 

 

     

 

 

   

 

 

 

Hotels, Restaurants & Leisure

               
  RTI Holding Company, LLC (an affiliate of Ruby Tuesday,
Inc.) (7)
    Warrant, expires 12/21/27   0.1  1,470,632      1,379,747    536,201 
        

 

 

  

 

 

     

 

 

   

 

 

 
         0.1  1,470,632      1,379,747    536,201 
        

 

 

  

 

 

     

 

 

   

 

 

 

Household Durables

               
  Cedar Ultimate Parent LLC(7)    Common Stock   0.0  300,000      —      —   
  Cedar Ultimate Parent LLC(7)    Preferred Stock   0.0  9,297,990      9,187,900    —   
  Cedar Ultimate Parent LLC(7)    Preferred Stock   0.0  2,900,000      —      —   
        

 

 

  

 

 

     

 

 

   

 

 

 
         0.0  12,497,990      9,187,900    —   
        

 

 

  

 

 

     

 

 

   

 

 

 

Technologies Hardware,
Storage and Peripherals

               
  Quantum Corporation(7)    Common Stock   0.1  391,945      1,708,311    783,890 
  Quantum Corporation(7)    Warrant, expires 10/31/23   0.1  900,045      1,192,100    373,415 
  Quantum Corporation(5) (7)    Warrant, expires 11/30/23   0.0  900,045      1,192,101    187,157 
  Quantum Corporation(7)    Warrant, expires 9/30/23   0.0  900,045      1,217,214    373,414 
  Quantum Corporation(7)    Warrant, expires 9/7/23   0.0  900,045      1,143,057    373,414 
        

 

 

  

 

 

     

 

 

   

 

 

 
         0.2  3,992,125      6,452,783    2,091,290 
        

 

 

  

 

 

     

 

 

   

 

 

 

Textiles, Apparel & Luxury Goods

               
  ASP Frontier Holdings, Inc. (7)    Warrant, expires 5/15/23   0.0  5,674      —      25,929 
        

 

 

  

 

 

     

 

 

   

 

 

 
         0.0  5,674      —      25,929 
        

 

 

  

 

 

     

 

 

   

 

 

 
  Total Equity Investments       1.2      24,661,077    11,392,230 
        

 

 

      

 

 

   

 

 

 
  Total Non-Controlled/Non-Affiliated Investments*   94.7     $935,510,142   $865,956,683 
    

 

 

      

 

 

   

 

 

 
                        Cost     
  Controlled/Affiliated Investments             

Investment Funds & Vehicles

               
  TCW Direct Lending Strategic Ventures LLC(2)(6)    Preferred membership interests   28.5  261,153     $235,200,003   $260,252,121 
  TCW Direct Lending Strategic Ventures LLC(2)(6)    Common membership interests   0.0  800      —      —   
        

 

 

      

 

 

   

 

 

 
  Total Controlled/Affiliated Investments       28.5     $235,200,003   $260,252,121 
        

 

 

      

 

 

   

 

 

 
  Cash Equivalents             
  Blackrock Liquidity Funds, Yield 2.31%       8.1  73,674,801      73,674,801    73,674,801 
        

 

 

      

 

 

   

 

 

 

 

10


Table of Contents

TCW DIRECT LENDING LLC

Consolidated Schedule of Investments (Continued)

As of December 31, 2018

 

Total Investments 131.3%

  $1,244,384,946   $1,199,883,605 
  

 

 

   

 

 

 

Net unrealized depreciation on unfunded
commitments (0.0%)

    $(169,454
    

 

 

 

Liabilities in Excess of Other Assets (31.3%)

    $(286,170,835
    

 

 

 

Net Assets 100.0%

    $913,543,316 
    

 

 

 

 

*

The fair value of the Quantum Corporation Common Stock held by the Company represents the quoted market price asof December 31, 2018 and is considered to be a Level 1 security within the Fair Value Hierarchy. The fair value of each non-controlled/non-affiliatedinvestment was determined using significant unobservable inputs and is considered to be Level 3 within the Fair Value Hierarchy. See Note 3 “Investment Valuations and Fair Value Measurements.”

(1)

Excluded from the investment above, is an unfunded loan commitment for a delayed draw term loan or revolvingcredit. The Company earns an unused fee on the unfunded commitment during the commitment period. The expiration date of the commitment period may be earlier than the maturity date of the investment stated above. See Note 5—Commitments andContingencies.

(2)

The investment is not a qualifying asset as defined in Section 55(a) under the Investment Company Act of1940, as amended. A business development company may not acquire an asset other than qualifying assets, unless, at the time the acquisition is made, qualifying assets represent at least 70% of the company’s total assets. As of December 31,2018, $269,157,494 or 21.1% of the Company’s total assets were represented by “non-qualifying assets.”

(3)

In addition to the interest earned based on the stated interest rate of this loan, the Company is entitled toreceive an additional interest amount on the “first out” tranche of the portfolio company’s first lien senior secured loans.

(4)

Holdings of Verus Financial, LLC common stock are through Verus Holdings LLC, a special purpose vehicle.

(5)

Fair value was reduced by 50% to represent the Company’s obligation to sell 50% of this investment back toQuantum for a nominal amount.

(6)

As defined in the Investment Company Act of 1940, the investment is deemed to be a “controlled affiliatedperson” of the Company because the Company owns, either directly or indirectly, 25% or more of the portfolio company’s outstanding voting securities or has the power to exercise control over management or policies of such portfoliocompany.

(7)

Non-income producing.

LIBOR - London Interbank Offered Rate, generally 1-Month or3-Month

Prime - Prime Rate

Aggregate acquisitions and aggregate dispositions of investments, other than government securities, totaled $123,170,342 and $388,281,120,respectively, for the year ended December 31, 2018. Aggregate acquisitions includes investment assets received as payment in kind. Aggregate dispositions includes principal paydowns on and maturities of debt investments.

 

Country Breakdown of Portfolio

    

United States

   99.3

Canada

   0.7

See Notes to Consolidated Financial Statements

 

11


Table of Contents

TCW DIRECT LENDING LLC

Consolidated Statements of Assets and Liabilities

(Dollar amounts in thousands, except unit data)

 

   As of
June 30,
2019
(unaudited)
  As of
December 31,
2018
 

Assets

   

Investments, at fair value

   

Non-controlled/non-affiliatedinvestments (amortized cost of $912,605 and $935,510, respectively)

  $812,356  $865,957 

Controlled affiliated investments (cost of $235,200)

   235,933   260,252 

Cash and cash equivalents

   84,212   145,912 

Interest receivable

   8,184   6,219 

Deferred financing costs

   1,995   3,260 

Receivable for investments sold

   283   —   

Receivable from Investment Adviser

   264   263 

Prepaid and other assets

   30   85 
  

 

 

  

 

 

 

Total Assets

  $1,143,257  $1,281,948 
  

 

 

  

 

 

 

Liabilities

   

Credit facility payable

  $315,000  $365,000 

Interest and credit facility expense payable

   250   151 

Directors’ fees payable

   135   —   

Unrealized depreciation on unfunded commitments

   52   169 

Management fees payable

   —     2,504 

Other accrued expenses and other liabilities

   391   581 
  

 

 

  

 

 

 

Total Liabilities

  $315,828  $368,405 
  

 

 

  

 

 

 

Commitments and Contingencies (Note 5)

   

Members’ Capital

   

Common Unitholders’ commitment: (20,134,698 units issued and outstanding)

  $2,013,470  $2,013,470 

Common Unitholders’ undrawn commitment: (20,134,698 units issued and outstanding)

   (409,125  (409,125

Common Unitholders’ return of capital

   (696,130  (614,130

Common Unitholders’ offering costs

   (853  (853

Accumulated Common Unitholders’ tax reclassification

   (9,480  (9,480
  

 

 

  

 

 

 

Common Unitholders’ capital

   897,882   979,882 

Accumulated loss

   (70,453  (66,339
  

 

 

  

 

 

 

Total Members’ Capital

  $827,429  $913,543 
  

 

 

  

 

 

 

Total Liabilities and Members’ Capital

  $1,143,257  $1,281,948 
  

 

 

  

 

 

 

Net Asset Value Per Unit (accrual base) (Note 9)

  $61.41  $65.69 
  

 

 

  

 

 

 

See Notes to Consolidated Financial Statements.

 

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TCW DIRECT LENDING LLC

Consolidated Statements of Operations (Unaudited)

(Dollar amounts in thousands, except unit data)

 

   For the three months ended
June 30,
  For the six months ended
June 30,
 
   2019  2018  2019  2018 

Investment Income:

 

Interest income fromnon-controlled/non-affiliated investments

  $22,241  $29,341  $46,867  $59,355 

Interest income fromnon-controlled/non-affiliated investments paid-in-kind

   3,710   2,984   6,560   8,394 

Dividend income fromnon-controlled/non-affiliated investments

   (14  —     55   —   

Dividend income from controlled affiliated investments

   18,560   25,717   39,360   32,056 

Other fee income fromnon-controlled/non-affiliated investments

   39   —     589   —   
  

 

 

  

 

 

  

 

 

  

 

 

 

Total investment income

   44,536   58,042   93,431   99,805 
  

 

 

  

 

 

  

 

 

  

 

 

 

Expenses:

 

Interest and credit facility expenses

   4,744   8,512   9,638   14,181 

Management fees

   2,165   2,722   4,360   5,395 

Administrative fees

   261   301   526   621 

Professional fees

   273   366   436   552 

Directors’ fees

   86   76   165   159 

Other expenses

   39   68   95   149 
  

 

 

  

 

 

  

 

 

  

 

 

 

Total expenses

   7,568   12,045   15,220   21,057 
  

 

 

  

 

 

  

 

 

  

 

 

 

Expenses reimbursed by the Investment Adviser

   —     (8  —     (8
  

 

 

  

 

 

  

 

 

  

 

 

 

Net expenses

   7,568   12,037   15,220   21,049 
  

 

 

  

 

 

  

 

 

  

 

 

 

Net investment income

  $36,968  $46,005  $78,211  $78,756 
  

 

 

  

 

 

  

 

 

  

 

 

 

Net realized and unrealized gain (loss) on investments

 

Net realized gain (loss) onnon-controlled/non-affiliated investments

   153   (545  (427  (545

Net realized gain distributions from affiliated investments

   —     843   —     843 

Net change in unrealized appreciation/depreciation on non-controlled/non-affiliated investments

   (19,735  (14,449  (30,579  (23,195

Net change in unrealized appreciation/depreciation on controlled affiliated investments

   (15,942  (19,703  (24,319  (15,371
  

 

 

  

 

 

  

 

 

  

 

 

 

Net realized and unrealized loss on investments

  $(35,524 $(33,854 $(55,325 $(38,268
  

 

 

  

 

 

  

 

 

  

 

 

 

Net increase in Members’ Capital from operations

  $1,444  $12,151  $22,886  $40,488 
  

 

 

  

 

 

  

 

 

  

 

 

 

Basic and diluted:

 

Income per unit

  $0.07  $0.60  $1.13  $2.02 

See Notes to Consolidated Financial Statements

 

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TCW DIRECT LENDING LLC

Consolidated Statements of Changes in Members’ Capital (Unaudited)

(Dollar amounts in thousands, except unit data)

 

   Common
Unitholders’
Capital
  Accumulated
Loss
  Total 

Members’ Capital at March 31, 2018

  $1,200,269  $(16,512 $1,183,757 

Net Increase (Decrease) in Members’ Capital Resulting from Operations:

    

Net investment income

   —     46,005   46,005 

Net realized gain on investments

   —     298   298 

Net change in unrealized appreciation/depreciation on investments

   —     (34,152  (34,152

Distributions to Members from:

    

Distributable earnings(1)

   —     (98,250  (98,250
  

 

 

  

 

 

  

 

 

 

Total Decrease in Members’ Capital for the three months ended June 30,2018

   —     (86,099  (86,099
  

 

 

  

 

 

  

 

 

 

Members’ Capital at June 30, 2018

  $1,200,269  $(102,611 $1,097,658 
  

 

 

  

 

 

  

 

 

 

Members’ Capital at December 31, 2017

  $1,300,269  $(24,849 $1,275,420 

Net Increase (Decrease) in Members’ Capital Resulting from Operations:

    

Net investment income

   —     78,756   78,756 

Net realized gain on investments

   —     298   298 

Net change in unrealized appreciation/depreciation on investments

   —     (38,566  (38,566

Distributions to Members from:

    

Distributable earnings(2)

   —     (118,250  (118,250

Return of unused capital

   (100,000  —     (100,000
  

 

 

  

 

 

  

 

 

 

Total Decrease in Members’ Capital for the six months ended June 30,2018

   (100,000  (77,762  (177,762
  

 

 

  

 

 

  

 

 

 

Members’ Capital at June 30, 2018

  $1,200,269  $(102,611 $1,097,658 
  

 

 

  

 

 

  

 

 

 

Members’ Capital at March 31, 2019

  $897,882  $(59,897 $837,985 

Net Increase (Decrease) in Members’ Capital Resulting from Operations:

    

Net investment income

   —     36,968   36,968 

Net realized gain on investments

   —     153   153 

Net change in unrealized appreciation/depreciation on investments

   —     (35,677  (35,677

Distributions to Members from:

    

Distributable earnings

   —     (12,000  (12,000
  

 

 

  

 

 

  

 

 

 

Total Decrease in Members’ Capital for the three months ended June 30,2019

   —     (10,556  (10,556
  

 

 

  

 

 

  

 

 

 

Members’ Capital at June 30, 2019

  $897,882  $(70,453 $827,429 
  

 

 

  

 

 

  

 

 

 

Members’ Capital at December 31, 2018

  $979,882  $(66,339 $913,543 

Net Increase (Decrease) in Members’ Capital Resulting from Operations:

    

Net investment income

   —     78,211   78,211 
Net realized loss on investments   —     (427  (427

Net change in unrealized appreciation/depreciation on investments

   —     (54,898  (54,898

Distributions to Members from:

    

Distributable earnings

   —     (27,000  (27,000

Return of capital

   (82,000  —     (82,000
  

 

 

  

 

 

  

 

 

 

Total Decrease in Members’ Capital for the six months ended June 30,2019

   (82,000  (4,114  (86,114
  

 

 

  

 

 

  

 

 

 

Members’ Capital at June 30, 2019

  $897,882  $(70,453 $827,429 
  

 

 

  

 

 

  

 

 

 

 

(1)

During the three months ended June 30, 2018, the Company distributed $98,250 from net investment income.

(2)

During the six months ended June 30, 2018, the Company distributed $118,250 from net investment income.

See Notes to Consolidated Financial Statements.

 

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TCW DIRECT LENDING LLC

Consolidated Statements of Cash Flows (Unaudited)

(Dollar amounts in thousands, except unit data)

 

   For the six
months ended
June 30,
2019
  For the six
months ended
June 30,
2018
 

Cash Flows from Operating Activities

 

Net increase in net assets resulting from operations

  $22,886  $40,488 

Adjustments to reconcile the net increase in net assets resulting from operations to net cashprovided by (used in) operating activities:

   

Purchases of investments

   (17,683  (66,731

Interest income paid in-kind

   (6,560  (8,394

Proceeds from sales and paydowns of investments

   49,127   160,833 

Net realized loss (gain) on investments

   427   545 

Change in net unrealized/appreciation depreciation on investments

   54,898   38,566 

Amortization of premium and accretion of discount, net

   (2,406  (4,521

Amortization of deferred financing costs

   1,265   4,164 

Increase (decrease) in operating assets and liabilities:

   

(Increase) decrease in interest receivable

   (1,965  3,354 

(Increase) decrease in receivable for investment sold

   (283  —   

(Increase) decrease in receivable from Investment Adviser

   (1  522 

(Increase) decrease in prepaid and other assets

   55   95 

Increase (decrease) in interest and credit facility expense payable

   99   1,942 

Increase (decrease) in directors’ fees payable

   135   118 

Increase (decrease) in management fees payable

   (2,504  —   

Increase (decrease) in other accrued expenses and liabilities

   (190  (108
  

 

 

  

 

 

 

Net cash provided by operating activities

  $97,300  $170,873 
  

 

 

  

 

 

 

Cash Flows from Financing Activities

   

Unused contributions returned to Members

  $ —    $(100,000

Return of capital

   (82,000  —   

Distributions to Members

   (27,000  (118,250

Proceeds from credit facility

   40,000   44,000 

Repayments of credit facility

   (90,000  (170,000
  

 

 

  

 

 

 

Net cash used in financing activities

  $(159,000 $(344,250
  

 

 

  

 

 

 

Net decrease in cash and cash equivalents

  $(61,700 $(173,377

Cash and cash equivalents, beginning of period

  $145,912  $209,784 
  

 

 

  

 

 

 

Cash and cash equivalents, end of period

  $84,212  $36,407 
  

 

 

  

 

 

 

Supplemental and non-cash financingactivities

   

Interest expense paid

  $8,020  $6,766 

See Notes to Consolidated Financial Statements.

 

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TCW DIRECT LENDING LLC

Notes to Consolidated Financial Statements (Unaudited)

(Dollar amounts in thousands, except for unit data)

June 30, 2019

1. Organization andBasis of Presentation

Organization: TCW Direct Lending LLC (“Company”), was formed as a Delaware corporation on March 20, 2014and converted to a Delaware limited liability company on April 1, 2014. The Company conducted a private offering of its limited liability company units (the “Common Units”) to investors in reliance on exemptions from the registrationrequirements of the U.S. Securities Act of 1933, as amended (the “Securities Act”). In addition, the Company may issue preferred units, though it currently has no intention to do so. The Company has engaged TCW Asset Management Company LLC(“TAMCO”), an affiliate of The TCW Group, Inc. (“TCW”) to be its adviser (the “Adviser”). On May 13, 2014 (“Inception Date”), the Company sold and issued 10 Common Units at an aggregate purchase price of$1 to TAMCO.

The Company has elected to be regulated as a business development company (“BDC”) under the Investment Company Act of 1940, asamended (the “1940 Act”). The Company has also elected to be treated for U.S. federal income tax purposes as a Regulated Investment Company (a “RIC”) under Subchapter M of the U.S Internal Revenue Code of 1986, as amended (the“Code”) for the taxable year ending December 31, 2015 and subsequent years. The Company is required to meet the minimum distribution and other requirements for RIC qualification and as a BDC and a RIC, the Company is required tocomply with certain regulatory requirements.

Throughout 2017, the Company formed several Delaware limited liability companies, all of which have a singlemember interest owned by the Company.

In 2018, the Company cancelled all but two of its wholly-owned Delaware limited liability companies. Further, TCWDirect Lending Luxembourg, a private limited liability company organized under the laws of Luxembourg and originally established in 2016 as a wholly-owned subsidiary, was also dissolved and the Company’s interest in the subsidiary wasterminated.

In January 2019, the Company established a wholly-owned subsidiary, TCW DL CTH LLC, a Delaware limited liability company, designed to holdone of the Company’s equity investments.

These consolidated financial statements include the accounts of the Company and its wholly ownedsubsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation.

Term: The term of the Company willcontinue until the sixth anniversary of the Initial Closing Date (as defined below), September 14, 2020 unless extended or sooner dissolved as provided in the limited liability agreement or by operation of law. The Company may extend the termfor two additional one-year periods upon written notice to the holders of the Common Units and holders of preferred units, if any, (collectively the “Unitholders” or “Members”) at least 90days prior to the expiration of the term or the end of the first one-year period. Thereafter, the term may be extended for successive one-year periods, with the vote orconsent of a supermajority in interest of the holders of the Common Units.

Commitment Period: The Commitment Period commenced onSeptember 19, 2014 (the “Initial Closing Date”) and ended on September 19, 2017, the third anniversary of the Initial Closing Date. In accordance with the Company’s Limited Liability Company Agreement, the Company maycomplete investment transactions that were significantly in process as of the end of the Commitment Period and which the Company reasonably expects to be consummated prior to 90 days subsequent to the expiration date of the Commitment Period. TheCompany may also effect follow-on investments up to an aggregate maximum of 10% of Capital Commitments (as defined below), provided that any such follow-on investment tobe made after the third anniversary of the expiration of the Commitment Period shall require the prior consent of a majority in interest of the Common Unitholders.

Capital Commitments: On September 19, 2014 (“the Initial Closing Date”), the Company began accepting subscription agreements frominvestors for the private sale of its Common Units. On March 19, 2015, the Company completed its final private placement of its Common Units. Subscription agreements with commitments (“Commitments”) from investors (each a “CommonUnitholder”) totaling $2,013,470 for the purchase of Common Units were accepted. Each Common Unitholder is obligated to contribute capital equal to their Commitment and each Unit’s Commitment obligation is $100.00 per unit. The amount ofcapital that remains to be drawn down and contributed is referred to as an “Undrawn Commitment”.

 

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Table of Contents

TCW DIRECT LENDING LLC

Notes to Consolidated Financial Statements (Unaudited) (Continued)

(Dollar amounts in thousands, except for unit data)

June 30, 2019

 

1. Organization and Basis of Presentation (Continued)

 

The commitment amount funded does not include amounts contributed in anticipation of a potential investmentthat the Company did not consummate and therefore returned to the Members’ as unused capital. As of June 30, 2019, aggregate Commitments, Undrawn Commitments and subscribed for Units of the Company were as follows:

 

   Commitments   Undrawn
Commitments
   % of
Commitments
Funded
  Units 

Common Unitholder

  $2,013,470   $409,125    79.7  20,134,698 

Recallable Amount: A Common Unitholder may be required to re-contribute amountsdistributed equal to 75% of the principal amount or the cost portion of any Portfolio Investment that is fully repaid to or otherwise fully recouped by the Company within one year of the Company’s investment. The Recallable Amount is excludedfrom the calculation of the accrual based net asset value.

The Recallable Amount as of June 30, 2019 was $100,875.

2. Significant Accounting Policies

Basis ofPresentation: The consolidated financial statements of the Company were prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). The Company is an investment company following accounting andreporting guidance in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 946, Financial Services—Investment Companies (“ASC 946”). The Company has consolidated the resultsof its wholly owned subsidiary in its consolidated financial statements in accordance with ASC 946.

Use of Estimates: The preparation of theconsolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect (i) the reported amounts of assets and liabilities at the date of the financial statements, (ii) the reportedamounts of income and expenses during the years presented and (iii) disclosure of contingent assets and liabilities at the date of the consolidated financial statements. Actual results could differ from those estimates, and such differencescould be material.

Investments: The Company measures the value of its investments in accordance with ASC Topic 820, Fair ValueMeasurements and Disclosure (“ASC 820”). Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Market participants aredefined as buyers and sellers in the principal or most advantageous market (which may be a hypothetical market) that are independent, knowledgeable, and willing and able to transact. In accordance with ASC 820, the Company considers its principalmarket to be the market that has the greatest volume and level of activity.

Transactions: The Company records investment transactions on the tradedate. The Company considers trade date for investments not traded on a recognizable exchange, or traded in the over-the-counter markets, to be the date on which theCompany receives legal or contractual title to the asset and bears the risk of loss.

Income Recognition: Interest income is recorded on an accrualbasis unless doubtful of collection or the related investment is in default. Realized gains and losses on investments are recorded on a specific identification basis. The Company typically receives a fee in the form of a discount to the purchaseprice at the time it funds an investment in a loan. The discount is accreted to interest income over the life of the respective loan, using the effective-interest method assuming there are no questions as to collectability, and reflected in theamortized cost basis of the investment. Discounts associated with a revolver as well as fees associated with a delayed draw that remains unfunded are treated as a discount to the issuers’ term loan. Ongoing facility, commitment or otheradditional fees including, prepayment fees, consent fees and forbearance fees are recognized immediately when earned as income.

Deferred FinancingCosts: Deferred financing costs incurred by the Company in connection with the revolving credit facility, including arrangement fees, upfront fees and legal fees, are amortized on a straight-line basis over the term of the revolving creditfacility.

 

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Table of Contents

TCW DIRECT LENDING LLC

Notes to Consolidated Financial Statements (Unaudited) (Continued)

(Dollar amounts in thousands, except for unit data)

June 30, 2019

 

2. Significant Accounting Policies (Continued)

 

Organization and Offering Costs: Costs incurred to organize the Company totaling $665 were expensed asincurred. Offering costs totaling $853 were accumulated and charged directly to Members’ Capital on March 19, 2015, the end of the period during which Common Units were offered (the “Closing Period”). The Company did not bearmore than an amount equal to 10 basis points of the aggregate capital commitments of the Company for organization and offering expenses.

Cash and CashEquivalents: The Company considers all investments with a maturity of three months or less at the time of acquisition to be cash equivalents. At June 30, 2019, cash and cash equivalents is comprised of demand deposits and highly liquidinvestments with maturities of three months or less, which approximate fair value.

Income Taxes: So long as the Company maintains its status as aRIC, it generally will not pay corporate-level U.S. Federal income taxes on any ordinary income or capital gains that it distributes at least annually to its Members as dividends. Rather, any tax liability related to income earned and distributed bythe Company represents obligations of the Company’s Members and will not be reflected in the consolidated financial statements of the Company.

Recent Accounting Pronouncements: In October 2016, the U.S. Securities and Exchange Commission (“SEC”) adopted new rules and amended existingrules (together, the “Final Rules”) intended to modernize the reporting and disclosure of information by registered investment companies and BDCs. In part, the Final Rules amend Regulation S-X andrequire standardized, enhanced disclosure about derivatives in investment company financial statements, as well as other amendments. The compliance date for the amendments to Regulation S-X is August 1,2017, and the Company has implemented the applicable requirements into this report, namely the separate disclosure of PIK interest income on the Consolidated Statements of Operations and disclosure of realized gains/(losses) on controlled affiliatedinvestments.

On May 28, 2014, the FASB issued Accounting Standards Update (“ASU”)No. 2014-09, Revenue from Contracts with Customers (Topic 606). The guidance in this update supersedes the revenue recognition requirements in Topic 605, Revenue Recognition, and mostindustry-specific guidance throughout the Industry Topics of the Codification. Additionally, this Update supersedes some cost guidance included in Subtopic 605-35, Revenue Recognition–Construction-Typeand Production-Type Contracts. This update is effective for fiscal years beginning after December 15, 2017. The adoption of this ASU did not have a material impact on the Company’s consolidated financial statements.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments (Subtopic825-10): Recognition and Measurement of Financial Assets and Liabilities. The amendments in this update makes improvements to the requirements for accounting for equity investments and simplify theimpairment assessment of equity investments. For public entities this update is effective for fiscal years beginning after December 15, 2017. The adoption of this ASU did not have a material impact on the Company’s consolidated financialstatements.

In February 2018, the FASB issued ASU 2018-03, Technical Corrections and Improvements to FinancialInstrumentOverall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The amendments in this update provide a variety of technical corrections andimprovements to how entities should account for financial instruments and shorten the amortization period for certain callable debt securities held at premium. For public entities, this update is effective for fiscal years beginning afterDecember 15, 2017, and for interim periods within those fiscal years beginning after June 15, 2018. The adoption of this ASU did not have a material impact on the Company’s consolidated financial statements.

On August 17, 2018, the SEC issued a final rule that reduces or eliminates certain disclosure requirements under Regulation S-X, and expands others. This final rule is effective for the Company beginning January 1, 2018. As a result of this final rule, the Company has presented in its Consolidated Statement of Assets andLiabilities its total accumulated earnings (loss), rather than its components.

 

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Table of Contents

TCW DIRECT LENDING LLC

Notes to Consolidated Financial Statements (Unaudited) (Continued)

(Dollar amounts in thousands, except for unit data)

June 30, 2019

 

2. Significant Accounting Policies (Continued)

 

On August 28, 2018, the FASB issued ASU 2018-13, Fair ValueMeasurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement. The updated guidance modifies the disclosure requirements on fair value measurements by (1) removing certain disclosurerequirements including policies related to valuation processes and the timing of transfers between levels of the fair value hierarchy, (2) amending disclosure requirements related to measurement uncertainty from the use of significantunobservable inputs, and (3) adding certain new disclosure requirements including changes in unrealized gains and losses for the period included in other comprehensive income (loss) for recurring Level 3 fair value measurements held at theend of the reporting period and the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. This ASU is effective for fiscal years beginning after December 15, 2019, including interimperiods therein, with early adoption permitted. As permitted by the ASU, the Company early adopted the following applicable provisions of the ASU:

 

  

removed the Company’s disclosure of policy for timing of transfers between levels;

 

  

removed the disclosure describing the Company’s valuation process for Level 3 fair value measurements;

 

  

for investments measured using net asset values, disclosed (1) the timing of liquidation of aninvestee’s assets and (2) the date when redemption restrictions will lapse, to the extent that such information has been publicly announced by the investee; and

 

  

disclosed information about the uncertainty of Level 3 fair value measurements as of the reporting date,rather than at a point in the future.

The Company is currently evaluating the effect of additional disclosures prescribed by this ASUon its consolidated financial statements.

3. Investment Valuations and Fair Value Measurements

Investments at Fair Value: Investments held by the Company are valued at fair value. Fair value is generally determined on the basis of last reportedsales prices or official closing prices on the primary exchange in which each security trades, or if no sales are reported, based on the midpoint of the valuation range obtained for debt investments from a quotation reporting system, establishedmarket makers or pricing service.

Investments for which market quotes are not readily available or are not considered reliable are valued at fair valueand approved by the Board of Directors (the “Board”) based on similar instruments, internal assumptions and the weighting of the best available pricing inputs.

Fair Value Hierarchy: Assets and liabilities are classified by the Company based on valuation inputs used to determine fair value into three levels:

Level 1 values are based on unadjusted quoted market prices in active markets for identical assets.

Level 2 values are based on significant observable market inputs, such as quoted prices for similar assets and quoted prices in inactivemarkets or other market observable inputs.

Level 3 values are based on significant unobservable inputs that reflect theCompany’s determination of assumptions that market participants might reasonably use in valuing the assets.

Categorization within the hierarchy isbased upon the lowest level of input that is significant to the fair value measurement. The valuation levels are not necessarily an indication of the risk associated with investing in those securities.

Level 1 Assets (Investments): The valuation techniques and significant inputs used to determine fair value are as follows:

Registered Investment Companies, (Level 1), include registered open-end investment companiesthat are valued based upon the reported net asset value of such investment.

Equity, (Level 1), includes common stock valued at theclosing price on the primary exchange in which the security trades.

 

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Table of Contents

TCW DIRECT LENDING LLC

Notes to Consolidated Financial Statements (Unaudited) (Continued)

(Dollar amounts in thousands, except for unit data)

June 30, 2019

 

3. Investment Valuations and Fair Value Measurements (Continued)

 

Level 3 Assets (Investments): The following valuation techniques and significantinputs are used to determine the fair value of investments in private debt and equity for which reliable market quotations are not available. Some of the inputs are independently observable however, a significant portion of the inputs and theinternal assumptions applied are unobservable.

Debt, (Level 3), include investments in privately originated senior secured debt.Such securities are valued based on specific pricing models, internal assumptions and the weighting of the best available pricing inputs. A discounted cash flow approach incorporating a weighted average cost of capital is generally used to determinefair value or, in some cases, an enterprise value waterfall method. Valuation may also include a shadow rating method. Standard pricing inputs include but are not limited to the financial health of the issuer, place in the capital structure, valueof other issuer debt, credit, industry, and market risk and events.

Equity, (Level 3), include common stock and warrants. Suchsecurities are valued based on specific pricing models, internal assumptions and the weighting of the best available pricing inputs. A market approach is generally used to determine fair value. Pricing inputs include, but are not limited to,financial health, and relevant business developments of the issuer; EBITDA; market multiples of comparable companies; comparable market transactions and recent trades or transactions; issuer, industry and market events; and contractual or legalrestrictions on the sale of the security. When a Black-Scholes pricing model is used it follows the income approach. The pricing model takes into account the contract terms as well as multiple inputs, including: time value, implied volatility,equity prices and interest rates. A liquidity discount based on current market expectations, future events, minority ownership position and the period management reasonably expects to hold the investment may be applied.

Pricing inputs and weightings applied to determine value require subjective determination. Accordingly, valuations do not necessarily representthe amounts that may eventually be realized from sales or other dispositions of investments.

Net Asset Value (“NAV”) (Investment Funds andVehicles): Equity investments in affiliated investment fund (Strategic Ventures) are valued based on the NAV reported by the investment fund. Investments held by the affiliated fund include debt investments in privately originated senior secureddebt. Such investments held by the affiliated fund are valued using the same methods, approach and standards applied above to debt investments held by the Company. The Company’s ability to withdraw from the fund is subject to restrictions. Theterm of the fund will continue until June 5, 2021 unless dissolved earlier or extended for two additional one-year periods by the Company, in its full discretion. The Company can further extend the termof the fund for additional one-year periods, upon notice to and consent from the fund’s management committee. The Company is entitled to income and principal distributed by the fund.

The following is a summary by major security type of the fair valuations according to inputs used in valuing investments listed in the Consolidated Scheduleof Investments as of June 30, 2019:

 

Investments

  Level 1   Level 2   Level 3   NAV   Total 

Debt

  $—    $—    $798,719   $—    $798,719 

Equity

   1,039    —      12,598    —      13,637 

Investment Funds &Vehicles(1)

   —      —      —      235,933    235,933 

Cash equivalents

   52,788    —      —      —      52,788 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Assets

  $53,827   $—    $811,317   $235,933   $1,101,077 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)

Includes equity investments in Strategic Ventures. In accordance with ASC Topic820-10, certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. The fair valueamounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the Consolidated Statements of Assets and Liabilities.

 

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Table of Contents

TCW DIRECT LENDING LLC

Notes to Consolidated Financial Statements (Unaudited) (Continued)

(Dollar amounts in thousands, except for unit data)

June 30, 2019

 

3. Investment Valuations and Fair Value Measurements (Continued)

 

The following is a summary by major security type of the fair valuations according to inputs used in valuinginvestments listed in the Consolidated Schedule of Investments as of December 31, 2018:

 

Investments

  Level 1   Level 2   Level 3   NAV   Total 

Debt

  $—    $—    $854,564   $—    $854,564 

Equity

   784    —      10,608    —      11,392 

Investment Funds &Vehicles(1)

   —      —      —      260,252    260,252 

Cash equivalents

   73,675    —      —      —      73,675 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Assets

  $74,459   $—    $865,172   $260,252   $1,199,883 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) 

Includes equity investments in Strategic Ventures. In accordance with ASC Topic820-10, certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. The fair valueamounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the Consolidated Statements of Assets and Liabilities.

The following tables provide a reconciliation of the beginning and ending balances for total investments that use Level 3 inputs for the three and sixmonths ended June 30, 2019:

 

   Debt   Equity   Total 

Balance, April 1, 2019

  $826,843   $11,217   $838,060 

Purchases*

   8,219    22    8,241 

Sales and paydowns of investments

   (16,179   —      (16,179

Amortization of premium and accretion of discount, net

   1,151    —      1,151 

Net realized gains

   153    —      153 

Net change in unrealized appreciation/depreciation

   (21,468   1,359    (20,109
  

 

 

   

 

 

   

 

 

 

Balance, June 30, 2019

  $798,719   $12,598   $811,317 
  

 

 

   

 

 

   

 

 

 

Change in net unrealized appreciation/depreciation in investments held as of June 30,2019

  $(19,982  $1,390   $(18,592

 

*

Includes payments received in-kind

 

   Debt   Equity   Total 

Balance, January 1, 2019

  $854,564   $10,608   $865,172 

Purchases*

   24,233    714    24,947 

Sales and paydowns of investments

   (49,831   —      (49,831

Amortization of premium and accretion of discount, net

   2,406    —      2,406 

Net realized gains (losses)

   169    (596   (427

Net change in unrealized appreciation/depreciation

   (32,822   1,872    (30,950
  

 

 

   

 

 

   

 

 

 

Balance, June 30, 2019

  $798,719   $12,598   $811,317 
  

 

 

   

 

 

   

 

 

 

Change in net unrealized appreciation/depreciation in investments held as of June 30,2019

  $(27,090  $1,903   $(25,187

 

*

Includes payments received in-kind

 

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Table of Contents

TCW DIRECT LENDING LLC

Notes to Consolidated Financial Statements (Unaudited) (Continued)

(Dollar amounts in thousands, except for unit data)

June 30, 2019

 

3. Investment Valuations and Fair Value Measurements (Continued)

 

The following tables provide a reconciliation of the beginning and ending balances for total investments thatuse Level 3 inputs for the three and six months ended June 30, 2018:

 

   Debt   Equity   Total 

Balance, April 1, 2018

  $1,146,154   $11,240   $1,157,394 

Purchases*

   16,334    9,188    25,522 

Sales and paydowns of investments

   (131,438   —      (131,438

Amortization of premium and accretion of discount, net

   2,858    —      2,858 

Net realized losses

   (545   —      (545

Net change in unrealized appreciation/depreciation

   (9,644   (4,300   (13,944
  

 

 

   

 

 

   

 

 

 

Balance, June 30, 2018

  $1,023,719   $16,128   $1,039,847 
  

 

 

   

 

 

   

 

 

 

Change in net unrealized appreciation/depreciation in investments held as of June 30,2018

  $(14,442  $(4,300  $(18,742

 

*

Includes payments received in-kind

 

   Debt   Equity   Total 

Balance, January 1, 2018

  $1,151,532   $10,851   $1,162,383 

Purchases*

   51,261    9,730    60,991 

Sales and paydowns of investments

   (164,160   (685   (164,845

Amortization of premium and accretion of discount, net

   4,521    —      4,521 

Net realized losses

   (545   —      (545

Net change in unrealized appreciation/depreciation

   (18,890   (3,768   (22,658
  

 

 

   

 

 

   

 

 

 

Balance, June 30, 2018

  $1,023,719   $16,128   $1,039,847 
  

 

 

   

 

 

   

 

 

 

Change in net unrealized appreciation/depreciation in investments held as of June 30,2018

  $(23,466  $(3,768  $(27,234

 

*

Includes payments received in-kind

During the three and six months ended June 30, 2019 and 2018, the Company did not have any transfers between levels.

 

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Table of Contents

TCW DIRECT LENDING LLC

Notes to Consolidated Financial Statements (Unaudited) (Continued)

(Dollar amounts in thousands, except for unit data)

June 30, 2019

 

3. Investment Valuations and Fair Value Measurements (Continued)

 

Level 3 Valuation and Quantitative Information: The following table summarizes thevaluation techniques and quantitative information utilized in determining the fair value of the Level 3 investments as of June 30, 2019.

 

Investment

Type

  Fair Value   

Valuation
Technique

  

Unobservable

Input

  

Range

  

Weighted
Average

  

Impact to
Valuation
from an
Increase
in Input

Debt

  $516,086   Income Method  

Weighted Average Cost of Capital

Shadow Credit Rating

  

5.6% to 19.8%

CCC to B+

  

11.4%

N/A

  

Decrease

Increase

Debt

  $160,474   Income Method  Shadow Credit Rating  B- to B-  N/A  Increase

Debt

  $74,160   

Market/Waterfall

Method

  

EBITDA Multiple

Revenue Multiple

  

0.2x to 8.2x

2.2x to 2.4x

  

N/A

N/A

  

Increase

Increase

Debt

  $40,134   Income Method  

Take-Out Indication

Shadow Credit Rating

  

94.0% to 97.0%

CCC- to CCC-

  

95.5%

N/A

  

Increase

Increase

Debt

  $7,865   

Income/Market/

Waterfall Method

  

Weighted Average Cost of Capital

Shadow Credit Rating

EBITDAMultiple

  

17.8% to 22.0%

CC to CCC-

3.8x to 4.8x

  

19.9%

N/A

N/A

  

Decrease

Increase

Increase

Equity

  $3,439   Income Method  

Implied Volatility

Risk Free Rate

ExpectedTerm

  

35.0% to 69.3%

1.7% to 2.1%

0.3 yrs. to 2.0 yrs.

  

68.6%

2.1%

0.3 yrs.

  

Increase

Increase

Increase

Equity

  $9,159   

Market/Waterfall

Method

  EBITDA Multiple  4.5x to 12.5x  N/A  Increase

The following table summarizes the valuation techniques and quantitative information utilized in determining the fair value ofthe Level 3 investments as of December 31, 2018. 

 

Investment

Type

  Fair Value   

Valuation
Technique

  

Unobservable

Input

  

Range

  

Weighted
Average

  

Impact to
Valuation
from an
Increase
in Input

Debt

  $589,854   Income Method  

Weighted Average Cost of Capital

Shadow Credit Rating

  

6.8% to 19.9%

CCC- to B+

  

12.1%

N/A

  

Decrease

Increase

Debt

  $206,877   Income Method  Shadow Credit Rating  CCC+ to B-  N/A  Increase

Debt

  $41,258   Market/Waterfall
Method
  

EBITDA Multiple

Revenue Multiple

  

5.7x to 8.2x

2.8x to 3.0x

  

N/A

N/A

  Increase
Increase

Debt

  $16,575   Income/Market/
Waterfall Method
  

Weighted Average Cost of Capital

Shadow Credit Rating

EBITDAMultiple

  

18.5% to 30.0%

CCC- to CC

4.5x to 9.0x

  

23.7%

N/A

N/A

  

Decrease

Increase

Increase

Equity

  $1,333   Income Method  

Implied Volatility

Risk Free Rate

ExpectedTerm

  

25.0% to 69.0%

2.4% to 2.5%

0.1 yrs. to 2.0 yrs.

  

68.1%

2.4%

0.1 yrs.

  

Increase

Increase

Increase

Equity

  $9,275   

Market/Waterfall

Method

  EBITDA Multiple  4.5x to 12.5x  N/A  Increase

Unless noted, the Company is utilizing the midpoint of a valuation range provided by an external, independent valuation firm.

 

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Table of Contents

TCW DIRECT LENDING LLC

Notes to Consolidated Financial Statements (Unaudited) (Continued)

(Dollar amounts in thousands, except for unit data)

June 30, 2019

 

4. Agreements and Related Party Transactions

Advisory Agreement: On September 15, 2014, the Company entered into an Investment Advisory and Management Agreement (the “AdvisoryAgreement”) with the Adviser, its registered investment adviser under the Investment Advisers Act of 1940, as amended. The Advisory Agreement was approved by the Board at an in-person meeting. Unlessearlier terminated, the Advisory Agreement will remain in effect for a period of two years and will remain in effect from year to year thereafter if approved annually by (i) the vote of the Board, or by the vote of a majority of our outstandingvoting securities, and (ii) the vote of a majority of the independent directors of the Board.

Management Fee: Pursuant to the AdvisoryAgreement, and subject to the overall supervision of the Board, the Adviser will manage the Company’s day-to-day operations and provide investment advisory servicesto the Company. The Company will pay to the Adviser, quarterly in advance, a management fee (the “Management Fee”) calculated as follows: (i) for the period starting on the initial closing date and ending on the earlier of(A) the last day of the calendar quarter during which the Commitment Period (as defined below) ends or (B) the last day of the calendar quarter during which the Adviser or an affiliate thereof begins to accrue a management fee with respectto a successor fund, 0.375% (i.e., 1.50% per annum) of the aggregate commitments determined as of the end of the Closing Period, and (ii) for each calendar quarter thereafter during the term of the Company (but not beyond the tenth anniversaryof the initial closing date), 0.1875% (i.e., 0.75% per annum) of the aggregate cost basis (whether acquired by the Company with contributions from members, other Company funds or borrowings) of all portfolio investments that have not been sold,distributed to the members, or written off for tax purposes (but reduced by any portion of such cost basis that has been written down to reflect a permanent impairment of value of any portfolio investment), determined in each case as of the firstday of such calendar quarter. The Management Fee in respect of the Closing Period will be calculated as if all capital commitments of the Company were made on the initial closing date, regardless of when Common Units were actually funded. The actualpayment of the Management Fee with respect to the Closing Period will not be made prior to the first day of the first full calendar quarter following the end of the Closing Period. The “Commitment Period” of the Company will begin on theinitial closing date and end on the earlier of (a) three years from the initial closing date and (b) the date on which the undrawn Commitment of each Common Unit has been reduced to zero. While the Management Fee will accrue from theinitial closing date, the Adviser intends to defer payment of such fees to the extent that such fees cannot be paid from interest and fee income generated by the Company’s investments.

For the three and six months ended June 30, 2019, Management Fees incurred amounted to $2,165 and $4,360, respectively, of which $0 remained payable atJune 30, 2019. For the three and six months ended June 30, 2018, Management Fees incurred amounted to $2,722 and $5,395, respectively, of which $0 remained payable at June 30, 2018.

Transaction and Other Fees: Any (i) transaction, advisory, consulting, management, monitoring, directors’ or similar fees, (ii) closing,investment banking, finders’, transaction or similar fees, (iii) commitment, breakup or topping fees or litigation proceeds and (iv) other fee or payment of services performed or to be performed with respect to an investment orproposed investment received from or with respect to Portfolio Companies or prospective Portfolio Companies in connection with the Company’s activities will be will be the property of the Company.

Since inception, the Company received $2,564 in such fees, of which $39 and $1,737, were paid during the three and six months ended June 30, 2019,respectively. No such fees were received during the three and six months ended June 30, 2018.    

Incentive Fee: Inaddition, the Adviser will receive an incentive fee (the “Incentive Fee”) as follows:

(a) First, no Incentive Fee will be oweduntil the Common Unitholders have collectively received cumulative distributions pursuant to this clause (a) equal to their aggregate capital contributions in respect of all Common Units;

 

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Table of Contents

TCW DIRECT LENDING LLC

Notes to Consolidated Financial Statements (Unaudited) (Continued)

(Dollar amounts in thousands, except for unit data)

June 30, 2019

 

4. Agreements and Related Party Transactions (Continued)

 

(b) Second, no Incentive Fee will be owed until the Common Unitholders have collectivelyreceived cumulative distributions equal to a 9% internal rate of return on their aggregate capital contributions in respect of all Common Units (the “Hurdle”);

(c) Third, the Adviser will be entitled to an Incentive Fee out of 100% of additional amounts otherwise distributable to Common Unitholdersuntil such time as the cumulative Incentive Fee paid to the Adviser is equal to 20% of the sum of (i) the amount by which the Hurdle exceeds the aggregate capital contributions of the Common Unitholders in respect of all Common Units and(ii) the amount of Incentive Fee being paid to the Adviser pursuant to this clause (c); and

(d) Thereafter, the Adviser will beentitled to an Incentive Fee equal to 20% of additional amounts otherwise distributable to Unitholders, with the remaining 80% distributed to the Unitholders.

The Incentive Fee will be calculated on a cumulative basis and the amount of the Incentive Fee payable in connection with any distribution (or deemeddistribution) will be determined and, if applicable, paid in accordance with the foregoing formula each time amounts are to be distributed to the Unitholders.

If the Advisory Agreement terminates early for any reason other than (i) the Adviser voluntarily terminating the agreement or (ii) our terminatingthe agreement for cause (as set out in the Advisory Agreement), we will be required to pay the Adviser a final incentive fee payment (the “Final Incentive Fee Payment”). The Final Incentive Fee Payment will be calculated as of the date theAdvisory Agreement is so terminated and will equal the amount of Incentive Fee that would be payable to the Adviser if (A) all our investments were liquidated for their current value (but without taking into account any unrealized appreciationof any portfolio investment), and any unamortized deferred portfolio investment-related fees would be deemed accelerated, (B) the proceeds from such liquidation were used to pay all our outstanding liabilities, and (C) the remainder weredistributed to Unitholders and paid as Incentive Fee in accordance with the “waterfall” (i.e., clauses (a) through (d)) described above for determining the amount of the Incentive Fee. We will make the Final Incentive Fee Payment incash on or immediately following the date the Advisory Agreement is so terminated. The Adviser Return Obligation (defined below) will not apply in connection with a Final Incentive Fee Payment.

For the three and six months ended June 30, 2019 and 2018, no Incentive Fees were incurred.

Administration Agreement: On September 15, 2014, the Company entered into the Administration Agreement with the Adviser under which the Adviser(or one or more delegated service providers) will oversee the maintenance of our financial records and otherwise assist on the Company’s compliance with regulations applicable to a BDC under the 1940 Act, and a RIC under the Code, to preparereports to our Members, monitor the payment of our expenses and the performance of other administrative or professional service providers, and generally provide us with administrative and back office support. The Company will reimburse theAdministrator for expenses incurred by it on behalf of the Company in performing its obligations under the Administration Agreement. Amounts paid pursuant to the Administration Agreement are subject to the annual cap on Company Expenses (as definedbelow), as described more fully below.

The Company, and indirectly the Unitholders, will bear (including by reimbursing the Adviser or Administrator) allother costs and expenses of its operations, administration and transactions, including, without limitation, organizational and offering expenses, management fees, costs of reporting required under applicable securities laws, legal fees of theCompany’s counsel and accounting fees. However, the Company will not bear (a) more than an amount equal to 10 basis points of the aggregate capital commitments of the Company for organization and offering expenses in connection with theoffering of Common Units through the Closing Period and (b) more than an amount equal to 12.5 basis points of the aggregate Commitments of the Company per annum (pro-rated for partial years) for its costsand expenses other than ordinary operating expenses (“Company Expenses”), including amounts paid to the Administrator under the Administration Agreement and reimbursement of expenses to the Adviser. All expenses that the Company will notbear will be borne by the Adviser or its affiliates. Notwithstanding the foregoing, the cap on Company Expenses does not apply to payments of the Management Fee, Incentive Fee, organizational and offering expenses (which are subject to the separatecap), amounts payable in connection with the Company’s borrowings (including interest, bank fees, legal fees and other transactional expenses related to any borrowing or borrowing facility and similar costs), costs and expenses relating to theliquidation of the Company, taxes, or extraordinary expenses (such as litigation expenses and indemnification payments).

 

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Table of Contents

TCW DIRECT LENDING LLC

Notes to Consolidated Financial Statements (Unaudited) (Continued)

(Dollar amounts in thousands, except for unit data)

June 30, 2019

 

4. Agreements and Related Party Transactions (Continued)

 

TCW Direct Lending Strategic Ventures LLC: On June 5, 2015, the Company, together with anaffiliate of Security Benefit Corporation and accounts managed by Oak Hill Advisors, L.P., entered into an Amended and Restated Limited Liability Company Agreement (the “Agreement”) to become members of TCW Direct Lending StrategicVentures LLC (“Strategic Ventures”). Strategic Ventures focuses primarily on making senior secured floating rate loans to middle-market borrowers. The Agreement was effective June 5, 2015. The Company’s investment in StrategicVentures is restricted from redemption until the termination of Strategic Ventures.

The Company’s capital commitment is $481,600, representingapproximately 80% of the preferred and common equity ownership of Strategic Ventures, with the third-party investors representing the remaining capital commitments and preferred and common equity ownership. A portion of the Company’s capitalcommitment was satisfied by the contribution of two loans to Strategic Ventures. Strategic Ventures also entered into a revolving credit facility to finance a portion of certain eligible investments on June 5, 2015.

The Company’s investments in controlled affiliated investments as of and transactions during the six months ended June 30, 2019 were as follows:

 

   Fair Value as of
January 1,
2019
   Purchases   Sales   Change in
Unrealized
Gains and (Losses)
  Fair Value as of
June 30,
2019
   Dividend
Income
   Realized
Gain
Distribution
 

Controlled Affiliates

 

           

TCW Direct Lending Strategic Ventures LLC

  $260,252   $—     $—    $(24,319 $235,933   $39,360   $—   
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

   

 

 

   

 

 

 

Total Controlled Affiliates

  $260,252   $—     $—     $(24,319 $235,933   $39,360   $—   
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

   

 

 

   

 

 

 

The Company’s investments in controlled affiliated investments as of and transactions during the year endedDecember 31, 2018 were as follows:

 

   Fair Value as of
January 1,
2018
   Purchases   Sales  Change in
Unrealized
Gains and (Losses)
   Fair Value as of
December 31,
2018
   Dividend
Income
   Realized
Gain
Distribution
 

Controlled Affiliates

 

           

TCW Direct Lending Strategic Ventures LLC

  $259,698   $21,600   $(25,954 $4,908   $260,252   $31,968   $931 
  

 

 

   

 

 

   

 

 

  

 

 

   

 

 

   

 

 

   

 

 

 

Total Controlled Affiliates

  $259,698   $21,600   $(25,954 $4,908   $260,252   $31,968   $931 
  

 

 

   

 

 

   

 

 

  

 

 

   

 

 

   

 

 

   

 

 

 

For the six months ended June 30, 2019 and year ended December 31, 2018, the Company did not recognize any realizedgains (losses) on controlled affiliated investments. During the six months ended June 30, 2019 and the year ended December 31, 2018, the Company recognized $0 and $931 respectively, of net realized gain distributions from TCW StrategicVentures.

 

26


Table of Contents

TCW DIRECT LENDING LLC

Notes to Consolidated Financial Statements (Unaudited) (Continued)

(Dollar amounts in thousands, except for unit data)

June 30, 2019

 

5. Commitments and Contingencies

The Company had the following unfunded commitments and unrealized losses by investment as of June 30, 2019 and December 31, 2018:

 

   Maturity/
Expiration
   June 30, 2019   December 31, 2018 

Unfunded Commitments

  Amount   Unrealized
Losses
   Amount   Unrealized
Losses
 

Ascensus Specialties, LLC (fka Vertellus Performance Chemicals LLC)

   September 2022   $4,218   $—     $4,218   $8 

Carrier & Technology Solutions, LLC

   July 2023    2,270    —      2,656    —   

ENA Holding Corporation

   May 2021    —      —      1,601    45 

FQSR, LLC

   May 2023    4,566    18    4,566    73 

Help At Home, LLC

   August 2020    14,865    —      14,865    —   

Quicken Parent Corp.

   April 2021    862    34    862    43 

Ruby Tuesday, Inc.

   December 2022    4,575    —      4,575    —   
    

 

 

   

 

 

   

 

 

   

 

 

 

Total

    $31,356   $52   $33,343   $169 
    

 

 

   

 

 

   

 

 

   

 

 

 

The Company’s total capital commitment to its underlying investment in Strategic Ventures is $481,600. As ofJune 30, 2019, the Company’s unfunded commitment to Strategic Ventures is $219,646.

From time to time, the Company may become a party tocertain legal proceedings incidental to the normal course of its business. As of June 30, 2019, management is not aware of any pending or threatened litigation.

In the normal course of business, the Company enters into contracts which provide a variety of representations and warranties, and that provide generalindemnifications. Such contracts include those with certain service providers, brokers and trading counterparties. Any exposure to the Company under these arrangements is unknown as it would involve future claims that may be made against theCompany; however, based on the Company’s experience, the risk of loss is remote and no such claims are expected to occur. As such, the Company has not accrued any liability in connection with such indemnifications.

6. Members’ Capital

During the three and six monthsended June 30, 2019 and 2018, the Company did not sell or issue any Common Units. The activity for the three and six months ended June 30, 2019 and 2018 is as follows:

 

   Three Months Ended
June 30,
   Six Months Ended
June 30,
 
   2019   2018   2019   2018 

Units at beginning of period

   20,134,698    20,134,698    20,134,698    20,134,698 
  

 

 

   

 

 

   

 

 

   

 

 

 

Units issued and committed at end of period

   20,134,698    20,134,698    20,134,698    20,134,698 
  

 

 

   

 

 

   

 

 

   

 

 

 

For the three and six months ended June 30, 2019 and 2018, the Company processed $0 of deemed distributions and re-contributions.

 

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TCW DIRECT LENDING LLC

Notes to Consolidated Financial Statements (Unaudited) (Continued)

(Dollar amounts in thousands, except for unit data)

June 30, 2019

 

7. Credit Facility

The Company has a secured revolving credit agreement (the “Credit Agreement”) with Natixis, New York Branch (“Natixis”) as administrativeagent and committed lender. The Credit Agreement provides for a revolving credit line of up to $750,000 (the “Maximum Commitment”) (the “Credit Facility”), subject to the lesser of the “Borrowing Base” assets or theMaximum Commitment (the “Available Commitment”). The Borrowing Base assets generally equal the sum of (a) a percentage of certain eligible investments in a controlled account, (b) a percentage of unfunded commitments from certaineligible investors in the Company and (c) cash in a controlled account. The Credit Agreement is generally secured by the Borrowing Base assets.

OnApril 10, 2017, the Company and Natixis entered into a Third Amended and Restated Revolving Credit Agreement. Under the Third Amended and Restated Revolving Credit Agreement borrowings bear interest at a rate equal to either the(a) adjusted eurodollar rate calculated in a customary manner plus 2.35%, (b) commercial paper rate plus 2.35%, or (c) a base rate calculated in a customary manner (using the higher of the Federal Funds Rate plus 0.50%, the Prime Rate andthe Floating LIBOR Rate plus 1.00%) plus 1.35%. Moreover, the Credit Agreement’s stated maturity date was extended from November 10, 2017 to April 10, 2020. The Credit Facility may be terminated, and any outstanding amounts thereundermay become due and payable, should the Company fail to satisfy certain covenants. As of June 30, 2019, the Company was in compliance with such covenants.

As of June 30, 2019 and December 31, 2018, the Available Commitment under the Third Amended and Restated Revolving Credit Agreement is$450,000 and $500,000, respectively.

As of June 30, 2019 and December 31, 2018, the amounts outstanding under the Credit Facility were$315,000 and $365,000, respectively. The carrying amount of the Credit Facility, which is categorized as Level 2 within the fair value hierarchy as of June 30, 2019 and December 31, 2018, approximates its fair value. Valuationtechniques and significant inputs used to determine fair value include Company details, credit, market and liquidity risk and events, financial health of the Company, place in the capital structure, interest rate and terms and conditions of theCredit Facility. The Company incurred financing costs of $10,123 in connection with the April 10, 2017 Third Amended and Restated Revolving Credit Agreement. The Company recorded these costs as deferred financing costs on its ConsolidatedStatements of Asset and Liabilities and are being amortized over the life of the Credit Facility. As of June 30, 2019 and December 31, 2018, $1,995 and $3,260, respectively, of such prepaid deferred financing costs had yet to beamortized.

The summary information regarding the Credit Facility for the three and six months ended June 30, 2019 and 2018 were as follows:

 

   Three Months Ended June 30,  Six Months Ended June 30, 
   2019  2018  2019  2018 

Credit facility interest expense

  $3,966  $2,976  $8,095  $6,747 

Undrawn commitment fees

   126   2,298   246   3,236 

Administrative fees

   16   17   32   33 

Amortization of deferred financing costs

   636   3,221   1,265   4,165 
  

 

 

  

 

 

  

 

 

  

 

 

 

Total

  $4,744  $8,512  $9,638  $14,181 
  

 

 

  

 

 

  

 

 

  

 

 

 

Weighted average interest rate

   4.82  4.35  4.85  4.19

Average outstanding balance

   325,549   270,560   331,906   320,392 

 

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TCW DIRECT LENDING LLC

Notes to Consolidated Financial Statements (Unaudited) (Continued)

(Dollar amounts in thousands, except for unit data)

June 30, 2019

 

8. Income Taxes

The Company has elected to be treated as a BDC under the 1940 Act and has elected to be treated as a RIC under the Code. So long as the Company maintains itsstatus as a RIC, it will generally not pay corporate-level U.S. Federal income or excise taxes on any ordinary income or capital gains that it distributes at least annually to its common unitholders as dividends. The Company elected to be taxed as aRIC in 2015. The Company evaluates tax positions taken or expected to be taken in the course of preparing its financial statements to determine whether the tax positions are “more-likely-than-not” tobe sustained by the applicable tax authority. Tax positions not deemed to meet the “more-likely-than-not” threshold are reversed and recorded as a tax benefit or expense in the current year. Allpenalties and interest associated with income taxes are included in income tax expense. Conclusions regarding tax positions are subject to review and may be adjusted at a later date based on factors including, but not limited to, on-going analyses of tax laws, regulations and interpretations thereof.

Federal Income Taxes: It is the policyof the Company to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and distribute all of its net taxable income and any net realized gains on investments to its shareholders. Therefore, nofederal income tax provision is required.

As of June 30, 2019 and December 31, 2018, the Company’s aggregate investment unrealizedappreciation and depreciation for federal income tax purposes were as follows:

 

   June 30, 2019   December 31, 2018 

Cost of investments for federal income tax purposes

  $1,200,645   $1,264,745 

Unrealized appreciation

  $3,906   $31,987 

Unrealized depreciation

  $103,475   $96,848 

Net unrealized depreciation on investments

  $99,569   $64,861 

The Company did not have any unrecognized tax benefits at December 31, 2018, nor were there any increases or decreases inunrecognized tax benefits for the period then ended; and therefore no interest or penalties were accrued. The Company is subject to examination by U.S. federal and state tax authorities regarding returns filed for the prior three and five years,respectively. An examination of the Company’s 2015 federal tax return was concluded in 2017. No adjustments were proposed.

 

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TCW DIRECT LENDING LLC

Notes to Consolidated Financial Statements (Unaudited) (Continued)

(Dollar amounts in thousands, except for unit data)

June 30, 2019

 

9. Financial Highlights

Selected data for a unit outstanding throughout the six months ended June 30, 2019 and 2018 is presented below. The accrual base Net Asset Value iscalculated by subtracting the per unit loss from investment operations from the beginning Net Asset Value per unit and reflects all units issued and outstanding.

 

   For the Six Months Ended
June 30,
 
   2019  2018 

Net Asset Value Per Unit (accrual base), Beginning of Period

  $65.69  $78.70 

Income from Investment Operations:

   

Net investment income(1)

   3.88   3.91 

Net realized and unrealized loss

   (2.75  (1.89
  

 

 

  

 

 

 

Total from investment operations

   1.13   2.02 

Less Distributions:

 

From net investment income

   (1.34  (5.88

Return of capital

   (4.07  0.00 
  

 

 

  

 

 

 

Total distributions(2)

   (5.41  (5.88
  

 

 

  

 

 

 

Net Asset Value Per Unit (accrual base), End of Period

  $61.41  $74.84 
  

 

 

  

 

 

 

Common Unitholder Total Return(3)(4)

   2.8  3.5
  

 

 

  

 

 

 

Common Unitholder IRR(5)

   7.4  6.9
  

 

 

  

 

 

 

Ratios and Supplemental Data

   

Members’ Capital, end of period

  $827,429  $1,097,658 

Units outstanding, end of period

   20,134,698   20,134,698 

Ratios based on average net assets of Members’ Capital:

   

Ratio of total expenses to average netassets(6)

   3.60  3.52

Expenses reimbursed by InvestmentAdviser(6)

   —    0.00%(7) 

Ratio of net expenses to average netassets(6)

   3.60  3.52

Ratio of financing cost to average netassets(4)

   1.13  1.18

Ratio of net investment income to average netassets(6)

   18.51  13.17

Ratio of net investment income (loss) to average net assets(6)

   18.51  13.17

Credit facility payable

  $315,000  $252,000 

Asset coverage ratio

   3.6   5.4 

Portfolio turnover rate(4)

   2.0  5.0

 

(1) 

Per unit data was calculated using the number of Common Units issued and outstanding as of June 30, 2019and 2018.

(2) 

Includes distributions which have an offsetting capital re-contribution(“deemed distributions”). Excludes return of unused capital.

(3) 

The Total Return for the six months ended June 30, 2019 and 2018 was calculated by taking the netinvestment income (loss) of the Company for the period divided by the weighted average capital contributions from the Members during the period. The return is net of management fees and expenses.

(4) 

Not annualized.

(5) 

The Internal Rate of Return (IRR) since inception for the Common Unitholders, after management fees, financingcosts and operating expenses is 7.4% through June 30, 2019. The IRR is computed based on cash flow due dates contained in notices to Members (contributions from and distributions to the Common Unitholders) and the net assets (residual value) ofthe Members’ Capital account at period end. The IRR is calculated based on the fair value of investments using principles and methods in accordance with GAAP and does not necessarily represent the amounts that may be realized from sales orother dispositions. Accordingly, the return may vary significantly upon realization.

(6) 

Annualized.

(7) 

Amount rounds to less than 0.01%.

 

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TCW DIRECT LENDING LLC

Notes to Consolidated Financial Statements (Unaudited) (Continued)

(Dollar amount in thousands, except for unit data)

June 30, 2019

 

10. Subsequent Events

The Company has evaluated subsequent events through the date of issuance of the consolidated financial statements. There have been no subsequent events thatrequire recognition or disclosure in these consolidated financial statements.

 

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Item 2. Management’s Discussion and Analysis ofFinancial Condition and Results of Operations

The information contained in this section should be read in conjunction with the consolidatedfinancial statements and notes thereto appearing elsewhere in this report on Form 10-Q. Some of the statements in this report (including in the following discussion) constitute forward-looking statementswithin the meaning of the Private Securities Litigation Reform Act of 1995, which relate to future events or future performance or financial condition of TCW Direct Lending LLC. For simplicity, this report uses the terms “Company,”“we,” “us,” and “our” to include TCW Direct Lending LLC and where appropriate in the context, its wholly-owned subsidiaries.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements that involve substantial risks and uncertainties. These forward- looking statements are not historical facts,but rather are based on current expectations, estimates and projections about us, our prospective portfolio investments, our industry, our beliefs, and our assumptions. Words such as “anticipates,” “expects,” “intends,”“plans,” “believes,” “seeks,” “estimates,” “would,” “should,” “targets,” “projects,” and variations of these words and similar expressions are intended to identifyforward-looking statements. These statements are not guarantees of future performance and are subject to risks, uncertainties, and other factors, some of which are beyond our control and are difficult to predict, that could cause actual results todiffer materially from those expressed or forecasted in the forward-looking statements including, without limitation:

 

  

an economic downturn could impair our portfolio companies’ ability to continue to operate, which could leadto the loss of some or all of our investments in such portfolio companies;

 

  

a contraction of available credit could impair our lending and investment activities;

 

  

interest rate volatility could adversely affect our results, particularly when we are using leverage as part ofour investment strategy;

 

  

our future operating results;

 

  

our business prospects and the prospects of our portfolio companies;

 

  

our contractual arrangements and relationships with third parties;

 

  

the ability of our portfolio companies to achieve their financial and other business objectives;

 

  

competition with other entities and our affiliates for investment opportunities;

 

  

uncertainty surrounding the financial stability of the United States, Europe and China;

 

  

the social, geopolitical, financial, trade and legal implications of Brexit;

 

  

an inability to replicate the historical success of any previously launched fund managed by the direct lendingteam of our investment adviser, TCW Asset Management Company LLC (the “Adviser”);

 

  

the speculative and illiquid nature of our investments;

 

  

the use of borrowed money to finance a portion of our investments;

 

  

the adequacy of our financing sources and working capital;

 

  

the costs associated with being an entity registered with the Securities Exchange Commission (“SEC”);

 

  

the loss of key personnel;

 

  

the timing of cash flows, if any, from the operations of our portfolio companies;

 

  

the ability of the Adviser to monitor and administer our investments;

 

  

the ability of The TCW Group, Inc. and its subsidiaries to attract and retain highly talented professionals thatcan provide services to the Adviser in its capacity as our investment adviser and administrator;

 

  

our ability to qualify and maintain our qualification as a regulated investment company, or “RIC,”under Subchapter M of the U.S. Internal Revenue Code of 1986, as amended, or the “Code,” and as a business development company (“BDC”) under the Investment Company Act of 1940 and the related tax implications;

 

  

the effect of legal, tax and regulatory changes; and

 

  

the other risks, uncertainties and other factors we identify under “Part I—Item 1A. Risk Factors”in the Form 10-K that we filed with the SEC on March 19, 2019 and elsewhere in this report.

 

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Although we believe that the assumptions on which these forward-looking statements are based are reasonable, someof those assumptions are based on the work of third parties and any of those assumptions could prove to be inaccurate; as a result, the forward-looking statements based on those assumptions also could prove to be inaccurate. In light of these andother uncertainties, the inclusion of a projection or forward-looking statement in this report should not be regarded as a representation by us that our plans and objectives will be achieved. You should not place undue reliance on theseforward-looking statements, which apply only as of the date of this report. We do not undertake any obligation to update or revise any forward-looking statements or any other information contained herein, except as required by applicable law. Thesafe harbor provisions of Section 21E of the 1934 Act, which preclude civil liability for certain forward-looking statements, do not apply to the forward- looking statements in this report because we are an investment company.

Overview

We were formed on April 1, 2014 as alimited liability company under the laws of the State of Delaware. We have filed an election to be regulated as a BDC under the 1940 Act. We have also elected to be treated for U.S. federal income tax purposes as a RIC under the Code for the taxableyear ending December 31, 2015 and subsequent years. We are required to continue to meet the minimum distribution and other requirements for RIC qualification. As such, we are required to comply with various regulatory requirements, such as therequirement to invest at least 70% of our assets in “qualifying assets,” source of income limitations, asset diversification requirements, and the requirement to distribute annually at least 90% of our taxable income and tax-exempt interest.

Each investor was required to enter into a subscription agreement in connection with itsCommitment (a “Subscription Agreement”). Under the terms of the subscription agreements, the Company may generally draw down all or any portion of the undrawn commitment with respect to each Common Unit upon at least ten businessdays’ prior written notice to the Common Unitholders. Investors have entered into subscription agreements for 20,134,698 Common Units of the Company issued and outstanding representing a total of $2.013 billion of committed capital.

Throughout 2017, we formed several Delaware limited liability companies, all of which have a single member interest owned by us.

In 2018, we cancelled all but two of our wholly-owned Delaware limited liability companies. Further, TCW Direct Lending Luxembourg, a private limitedliability company organized under the laws of Luxembourg and originally established in 2016 as a wholly-owned subsidiary, was also dissolved and our interest in the subsidiary was terminated.

In January 2019, we established a wholly-owned subsidiary, TCW DL CTH LLC, a Delaware limited liability company, designed to hold one of our equityinvestments.

Revenues

We generate revenues in theform of interest income and capital appreciation by providing private capital to middle market companies operating in a broad range of industries primarily in the United States. As our investment period has ended, we will not originate new loans,but may increase credit facilities to existing borrowers or affiliates. In general, we do not expect the Direct Lending Team to originate a significant amount of investments for us withpayment-in-kind (“PIK”) interest features, although we may have investments with PIK interest features in limited circumstances. Our highly negotiated privateinvestments may include senior secured loans, unsecured senior loans, subordinated and mezzanine loans, convertible securities, equity securities, and equity-linked securities such as options and warrants. However, historically, our investment biashas been towards adjustable-rate, senior secured loans. We do not anticipate a secondary market developing for our private investments.

We are primarilyfocused on investing in senior secured debt obligations, although there may be occasions where the investment may be unsecured. We also consider an equity investment as the primary security, in combination with a debt obligation, or as a part oftotal return strategy. Our investments are in corporations, partnerships or other business entities. Additionally, in certain circumstances, we may co-invest with other investors and/or strategic partnersthrough indirect investments in portfolio companies through a joint venture vehicle, partnership or other special purpose vehicle (each, an “Investment Vehicle”). While we invest primarily in U.S. companies, there are certain instanceswhere we invested in companies domiciled elsewhere.

Expenses

We do not currently have any employees and do not expect to have any employees. Services necessary for our business are provided through the AdministrationAgreement and the Advisory Agreement.

We will bear (including by reimbursing the Adviser or Administrator) all costs and expenses of our operations,administration and transactions, including, without limitation, organizational and offering expenses, management fees, costs of reporting required under applicable securities laws, legal fees of our counsel and accounting fees. However, we will notbear (a) more than an amount equal to

 

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10 basis points of the aggregate Commitments for organization and offering expenses in connection with theoffering of Common Units through the Closing Period and (b) more than an amount equal to 12.5 basis points of the aggregate Commitments per annum (pro-rated for partial years) for our Operating Expenses,including amounts paid to the Administrator under the Administration Agreement and reimbursement of expenses to the Adviser and its affiliates. Notwithstanding the foregoing, the cap on Operating Expenses does not apply to payments of the ManagementFee, Incentive Fee, organizational and offering expenses (which are subject to the separate cap described above), amounts payable in connection with our borrowings (including interest, bank fees, legal fees and other transactional expenses relatedto any borrowing or borrowing facility and similar costs), costs and expenses relating to our liquidation of the Company, taxes, or extraordinary expenses (such as litigation expenses and indemnification payments to either the Adviser or theAdministrator). All expenses that we will not bear will be borne by the Adviser or its affiliates.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based upon our financial statements which have been prepared in accordancewith accounting principles generally accepted in the United States of America (“U.S. GAAP”). The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets,liabilities, revenues and expenses. Changes in the economic environment, financial markets and any other parameters used in determining such estimates could cause actual results to differ.

In addition to the discussion below, our critical accounting policies are further described in Note 2 to the consolidated financial statements. We considerthese accounting policies to be critical because they involve management judgments and assumptions, require estimates about matters that are inherently uncertain and are important for understanding and evaluating our reported financial results.These judgments will affect the reported amounts of assets and liabilities and our disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reportingperiods. With different estimates or assumptions, materially different amounts could be reported in our financial statements. The critical accounting policies should be read in connection with our risk factors as disclosed in “Item 1A. RiskFactors.”

Investments at Fair Value

Investments which we hold for which market quotes are not readily available or are not considered reliable are valued at fair value and approved by our Boardof Directors based on similar instruments, internal assumptions and the weighting of the best available pricing inputs.

Fair Value Hierarchy: Assets andliabilities are classified by us based on valuation inputs used to determine fair value into three levels.

Level 1 values are basedon unadjusted quoted market prices in active markets for identical assets.

Level 2 values are based on significant observable marketinputs, such as quoted prices for similar assets and quoted prices in inactive markets or other market observable inputs.

Level 3values are based on significant unobservable inputs that reflect our determination of assumptions that market participants might reasonably use in valuing the assets.

Categorization within the hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The valuation levels are notnecessarily an indication of the risk associated with investing in those securities.

Level 1 Assets (Investments): Thevaluation techniques and significant inputs used to determine fair value are as follows:

Registered Investment Companies, (Level1), include registered open-end investment companies that are valued based upon the reported net asset value of such investment.

Equity, (Level 1), includes common stock valued at the closing price on the primary exchange in which the security trades.

Level 3 Assets (Investments): The following valuation techniques and significant inputs are used to determine the fair value ofinvestments in private debt for which reliable market quotations are not available. Some of the inputs are independently observable however, a significant portion of the inputs and the internal assumptions applied are unobservable.

Debt, (Level 3), include investments in privately originated senior secured debt. Such securities are valued based on specific pricingmodels, internal assumptions and the weighting of the best available pricing inputs. A discounted cash flow approach incorporating a weighted average cost of capital is generally used to determine fair value or, in some cases, an enterprise valuewaterfall method. Valuation may also include a shadow rating method. Standard pricing inputs include but are not limited to the financial health of the issuer, place in the capital structure, value of other issuer debt, credit, industry, and marketrisk and events.

 

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Equity, (Level 3), include common stock. Such securities are valued based on specificpricing models, internal assumptions and the weighting of the best available pricing inputs. A market approach is generally used to determine fair value. Pricing inputs include, but are not limited to, financial health, and relevant businessdevelopments of the issuer; EBITDA; market multiples of comparable companies; comparable market transactions and recent trades or transactions; issuer, industry and market events; and contractual or legal restrictions on the sale of the security. Aliquidity discount based on current market expectations, future events, minority ownership position and the period management reasonably expects to hold the investment may be applied.

Pricing inputs and weightings applied to determine value require subjective determination. Accordingly, valuations do not necessarily representthe amounts that may eventually be realized form sales or other dispositions of investments.

Net Asset Value (“NAV”) (Investment Funds andVehicles): Equity investments in affiliated investment fund (TCW Strategic Ventures) are valued based on the net asset value reported by the investment fund. Investments held by the affiliated fund include debt investments in privatelyoriginated senior secured debt. Such investments held by the affiliated fund are valued using the same methods, approach and standards applied above to debt investments held by the Company. The Company’s ability to withdraw from the fund issubject to restrictions. The term of the fund will continue until June 5, 2021 unless dissolved earlier or extended for two additional one-year periods by the Company, in its full discretion. The Companycan further extend the term of the fund for additional one-year periods, upon notice to and consent from the funds management committee. The Company is entitled to income and principal distributed by the fund.

Investment Activity

As of June 30, 2019, our non-controlled/non-affiliated portfolio consisted of 23 debt and seven equity investments. Based on fair values as of June 30, 2019, our non-controlled/non-affiliated portfolio was 98.3% invested in debt investments which were mostly senior secured, first lien term loans and 1.7% invested in equity investments comprised of common and preferredstocks as well as warrants.

As of December 31, 2018, ournon-controlled/non-affiliated portfolio consisted of 22 debt investments and five equity investments. Of these investments, 98.7% were debt investments which wereprimarily senior secured, first lien term loans and 1.3% were equity comprised of common and preferred stocks as well as warrants.

The table belowdescribes our non-controlled/non-affiliated investments by industry classification and enumerates the percentage, by fair value, of the total portfolio assets inindustries as of June 30, 2019:

 

Industry

  Percent of Total Investments 

Hotels, Restaurants & Leisure

   16

Food Products

   13

Industrial Conglomerates

   12

Metals & Mining

   10

Information Technology Services

   6

Auto Components

   6

Health Care Providers & Services

   5

Chemicals

   5

Commercial Services & Supplies

   5

Diversified Financial Services

   5

Pharmaceuticals

   4

Household Durables

   3

Distributors

   3

Software

   2

Internet & Direct Marketing Retail

   2

Construction & Engineering

   1

Textiles, Apparel & Luxury Goods

   1

Technologies Hardware, Storage and Peripherals

   1
  

 

 

 

Total

   100
  

 

 

 

Interest income fromnon-controlled/non-affiliated investments, including interest income paid-in-kind, was$26.0 million and $32.3 million for the three months ended June 30, 2019 and 2018, respectively. Interest income from non-controlled/non-affiliatedinvestments, including interest income paid-in-kind, was $53.4 million and $67.7 million for the six months ended June 30, 2019 and 2018, respectively.

 

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Results of Operations

Our operating results for the three and six months ended June 30, 2019 and 2018 were as follows (dollar amounts in thousands):

 

   For the three months ended
June 30,
   For the six months ended
June 30,
 
   2019   2018   2019   2018 

Total investment income

  $44,536   $58,042   $93,431   $99,805 

Net expenses

   7,568    12,037    15,220    21,049 
  

 

 

   

 

 

   

 

 

   

 

 

 

Net investment income

  $36,968   $46,005   $78,211   $78,756 
  

 

 

   

 

 

   

 

 

   

 

 

 

Net realized gain (loss) onnon-controlled/non-affiliated investments

   153    (545   (427   (545

Net realized gain distributions from affiliated investments

   —      843    —      843 

Net change in unrealized appreciation/depreciation on non-controlled/non-affiliated investments

   (19,735   (14,449   (30,579   (23,195

Net change in unrealized appreciation/depreciation on controlled affiliated investments

   (15,942   (19,703   (24,319   (15,371
  

 

 

   

 

 

   

 

 

   

 

 

 

Net increase in Members’ Capital from operations

  $1,144   $12,151   $22,886   $40,488 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total investment income

Total investment income for the three months ended June 30, 2019 and 2018 was $44.5 million and $58.0 million, respectively, and includedinterest income from non-controlled/non-affiliated investments of $26.0 million and $32.3 million, respectively, as well as dividend income from TCW StrategicVentures, a controlled affiliated investment which commenced operations in 2015 of $18.6 million and $25.7 million, respectively.

The decreasein total investment income during the three months ended June 30, 2019 compared to the three months ended June 30, 2018, is due mainly to the decrease in dividend income from TCW Strategic Ventures coupled with lower interest income fromour non-controlled/non-affiliated investments, reflecting the wind down of our investment operations since the expiration of our investment period.

Total investment income for the six months ended June 30, 2019 and 2018 was $93.4 million and $99.8 million, respectively, and

included interest income from non-controlled/non-affiliated investments of$53.4 million and $67.7 million, respectively, as well as

dividend income from TCW Strategic Ventures of $39.4 million and$32.1 million, respectively. During the three and six months ended June 30, 2019, total investment income also included other fee income fromnon-controlled/non-affiliated investments of $39 thousand and $0.6 million, respectively.

The decrease in total investment income during the six months ended June 30, 2019 compared to the six months ended June 30, 2018, is primarily dueto the decrease in interest income from non-controlled/non-affiliated investments, which, as previously mentioned, is consistent with the wind down of our investmentoperations since the expiration of our investment period. This was partially offset by an increase in dividend income from TCW Strategic Ventures, stemming from loan payoffs during the first quarter of fiscal 2019.

Net investment income

Net investment income for thethree months ended June 30, 2019 and 2018 was $37.0 million and $46.0 million, respectively. The decrease in net investment income during the three months ended June 30, 2019 compared to the three months ended June 30, 2018is primarily attributable to lower total investment income as previously described, partially offset by lower expenses, particularly as it relates to our interest and credit facility expenses.

Net investment income for the six months ended June 30, 2019 and 2018 was $78.2 million and $78.8 million, respectively. Net investment incomeremained relatively flat as the decrease in total investment income during the six months ended June 30, 2019 compared to the six months ended June 30, 2018 was closely offset by the decrease in total expenses, especially as it relates toour interest and credit facility expenses.

 

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Operating expenses for the three and six months ended June 30, 2019 and 2018 were as follows (dollar amountsin thousands):

 

   For the three months ended
June 30,
   For the six months ended
June 30,
 
   2019   2018   2019   2018 

Expenses:

 

Interest and credit facility expenses

  $4,744   $8,512   $9,638   $14,181 

Management fees

   2,165    2,722    4,360    5,395 

Administrative fees

   261    301    526    621 

Professional fees

   273    366    436    552 

Directors’ fees

   86    76    165    159 

Other expenses

   39    68    95    149 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses

   7,568    12,045    15,220    21,057 
  

 

 

   

 

 

   

 

 

   

 

 

 

Expenses reimbursed by the Investment Adviser

   —      (8   —      (8
  

 

 

   

 

 

   

 

 

   

 

 

 

Net expenses

  $7,568   $12,037   $15,220   $21,049 
  

 

 

   

 

 

   

 

 

   

 

 

 

Our total operating expenses were $7.6 million and $12.0 million for the three months ended June 30, 2019 and2018, respectively, and included management fees attributed to the Adviser of $2.2 million and $2.7 million, respectively. The decrease in management fees during the current quarter compared to the three months ended June 30, 2018reflects the effects of the expiration of our Commitment Period. In particular, interest and credit facility expenses decreased during the quarter compared to the three months ended June 30, 2018 primarily due to lower undrawn commitment feesas well as a decrease in the amortization of our deferred financing costs. These were partially offset by higher interest expense due to a higher average outstanding balance coupled with a higher weighted average interest during the quarter.

Our total operating expenses were $15.2 million and $21.1 million for the six months ended June 30, 2019 and 2018, respectively. Our operatingexpenses included management fees attributed to the Adviser of $4.4 million and $5.4 million for the six months ended June 30, 2019 and 2018, respectively. As previously described, the decrease in management fees during the six monthsended June 30, 2019 compared to the six months ended June 30, 2018 is due to the expiration of our Commitment Period. Interest and credit facility expenses decreased during the six months ended June 30, 2019 compared to the six monthsended June 30, 2018 due to the same factors previously described for the three months ended June 30, 2019 and 2018.

Net expenses include anexpense reimbursement from the Adviser of $8 thousand for the three and six months ended June 30, 2018.

Net realized gain (loss) on non-controlled/non-affiliated investments

Our net realized gain (loss) on non-controlled/non-affiliated investments for the three months ended June 30, 2019 and 2018 was $0.2 million and ($0.5) million, respectively. The net realizedgain during the quarter is primarily attributable to our term loan to Ruby Tuesday, Inc. Our net realized loss on non-controlled/non-affiliated investments during thethree months ended June 30, 2018 is primarily due to our term loans to H-D Advanced Manufacturing Company, which recognized realized losses of $2.4 million relating to PIK interest income that wasforgiven during the quarter in exchange for, among other things, a cash amendment fee and a 1.5 year credit term extension. This was partially offset by an aggregate $1.9 million of realized gains from the disposition of our term loans toMavenir, Inc. and Mavenir Private Holdings II Ltd.

Our net realized loss onnon-controlled/non-affiliated investments for the six months ended June 30, 2019 and 2018 was $0.4 million and $0.5 million, respectively. The netrealized loss on non-controlled/non-affiliated investments during the six months ended June 30, 2019 was primarily due to our warrants for Quantum Corporation,which the portfolio company repurchased during the first quarter of calendar year 2019. These losses were partially offset by our net realized gain from our term loan to Ruby Tuesday, Inc. Similar to the three months ended June 30, 2018, ournet realized loss on non-controlled/non-affiliated investments during the six months ended June 30, 2018 is primarily due to our term loans to H-D Advanced Manufacturing Company, which recognized realized losses of $2.4 million relating to PIK interest income that was forgiven in exchange for, among other things, a cash amendment fee and a 1.5 yearcredit term extension. This was partially offset by an aggregate $1.9 million of realized gains from the disposition of our term loans to Mavenir, Inc. and Mavenir Private Holdings II Ltd.

Net realized gain distributions from controlled affiliated investments

Our net realized gain distributions from controlled affiliated investments for the three and six months ended June 30, 2019 and 2018 were $0 and$0.8 million, respectively. The net realized gain during 2018 reflects a distribution from TCW Strategic Ventures during the three months ended June 30, 2018 from its net short- and long-term gains.

 

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Net change in unrealized appreciation/depreciation on non-controlled/non-affiliated investments

Our net change in unrealized appreciation/depreciation on non-controlled/non-affiliated investments for the three months ended June 30, 2019 and 2018 was ($19.7) million and ($14.4) million, respectively. Our net change inunrealized appreciation/depreciation during the three months ended June 30, 2019 was primarily due to our term loans to Carrier & Technology Holdings, LLC; Carrier & Technology Solutions, LLC; Frontier Spinning Mills, Inc.;and Noramco, LLC, which collectively recognized $22.0 million in unrealized depreciation during the period. These were partially offset by unrealized gains from our tem loan to Ruby Tuesday, Inc., which recognized $1.4 million inunrealized appreciation during the quarter as well from our term loan to Bumble Bee Holdings, Inc., which also recognized $1.2 million in unrealized appreciation during the quarter.

Our net change in unrealized appreciation/depreciation for the three months ended June 30, 2018 was primarily due to our term loans to QuantumCorporation, H-D Advanced Manufacturing Company and Noramco, LLC, which recorded unrealized depreciation of $5.8 million, $1.9 million and $1.6 million, respectively. In addition, as part of thedisposition of our term loan to Mavenir, Inc. we recorded $1.8 million in unrealized depreciation as reversals of previously recorded unrealized appreciation.

Our net change in unrealized appreciation/depreciation onnon-controlled/non-affiliated investments for the six months ended June 30, 2019 and 2018 was ($30.6) million and ($23.2) million, respectively. Our net change inunrealized appreciation/depreciation for the six months ended June 30, 2019 was primarily due to our term loans to Carrier & Technology Holdings, LLC; Carrier & Technology Solutions, LLC (together with Carrier TechnologyHoldings, LLC, “Carrier,” and formerly known as Patriot National, Inc.); Frontier Spinning Mills, Inc.; and Noramco, LLC, which collectively recognized $33.4 million in unrealized depreciation during the period. These were partiallyoffset by unrealized gains from our Quantum Corporation warrants, which recognized an aggregate $2.6 million in unrealized appreciation during the period.

Our net change in unrealized appreciation/depreciation for the six months ended June 30, 2018 was primarily due to our term loans to Patriot National,Inc., (currently known as Carrier) and Quantum Corporation which recorded unrealized depreciation of $14.1 million and $7.8 million, respectively.

Net change in unrealized appreciation/depreciation on controlled/affiliated investments

Our net change in unrealized appreciation/depreciation on controlled/affiliated investments was ($15.9) million and ($19.7) million for the threemonths ended June 30, 2019 and 2018, respectively, and ($24.3) million and ($15.4) million for the six months ended June 30, 2019 and 2018, respectively. The net change in unrealized appreciation/depreciation on controlled/affiliatedinvestments during the three and six months ended June 30, 2019 is primarily attributable to a loan originated in 2016, as well as undistributed profits from TCW Strategic Ventures. The net change in unrealized appreciation/depreciation during thethree and six months ended June 30, 2018 is primarily attributable to certain loans originated in 2017 and 2016, as well as undistributed profits from TCW Strategic Ventures.

Net increase in members’ capital from operations

Our net increase in members’ capital from operations during the three months ended June 30, 2019 and 2018 was $1.4 million and$12.2 million, respectively. The lower increase during the three months ended June 30, 2019 compared to the three months ended June 30, 2018 is primarily attributable to lower net investment income and higher net unrealizeddepreciation on our non-controlled/non-affiliated investments, partially offset by lower net unrealized depreciation on our controlled affiliated investment.

Our net increase in members’ capital from operations during the six months ended June 30, 2019 and 2018 was $22.9 million and$40.5 million, respectively. The lower increase during the six months ended June 30, 2019 compared to the six months ended June 30 2018 is primarily due to higher net unrealized depreciation on both of our controlled affiliated and non-controlled/non-affiliated investments.

Direct Lending Strategic VenturesLLC

On June 5, 2015, the Company, together with an affiliate of Security Benefit Corporation and accounts managed by Oak Hill Advisors, L.P.,entered into an Amended and Restated Limited Liability Company Agreement (the “Agreement”) to become members of TCW Strategic Ventures. TCW Strategic Ventures focuses primarily on making senior secured floating rate loans to middle-marketborrowers. The Agreement was effective June 5, 2015. The Company’s capital commitment is $481.6 million, representing approximately 80% of the preferred and common equity ownership of TCW Strategic Ventures, with the third-partyinvestors representing the remaining capital commitments and preferred and common equity ownership. A portion of the Company’s capital commitment was satisfied by the contribution of two loans to TCW Strategic Ventures. TCW Strategic Venturesalso entered into a revolving credit facility to finance a portion of certain eligible investments on June 5, 2015. The revolving credit facility is for up to $600 million. TCW Strategic Ventures is managed by a management committeecomprised of two members, one appointed by the Company and one appointed by Oak Hill Advisors, L.P. All decisions of the management committee require unanimous approval of its members. Neither the Company, nor the Adviser will receive managementfees from this entity. Although the Company owns more than 25% of the voting securities of TCW Strategic Ventures, the Company does not believe that it has control over TCW Strategic Ventures (other than for purposes of the 1940 Act). TheCompany’s ability to withdraw from the fund is subject to restrictions.

 

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The Company’s investments in controlled affiliated investments as of and transactions during the threemonths ended June 30, 2019 were as follows (dollar amounts in thousands):

 

   Fair Value as of
January 1,
2019
   Purchases   Sales   Change in
Unrealized
Gains and (Losses)
  Fair Value as of
June 30,
2019
   Dividend
Income
   Realized
Gain
Distribution
 

Controlled Affiliates

             

TCW Direct Lending Strategic Ventures LLC

  $260,252   $—     $    —     $(24,319 $235,933   $39,360   $—   
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

   

 

 

   

 

 

 

Total Controlled Affiliates

  $260,252   $—     $—     $(24,319 $235,933   $39,360   $—   
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

   

 

 

   

 

 

 

The Company’s investments in controlled affiliated investments for the years ended December 31, 2018 were as follows(dollar amounts in thousands):

 

   Fair Value as of
January 1,
2018
   Purchases   Sales  Change in
Unrealized
Gains and (Losses)
   Fair Value as of
December 31,
2018
   Dividend
Income
   Realized
Gain
Distribution
 

Controlled Affiliates

             

TCW Direct Lending Strategic Ventures LLC

  $259,698   $21,600   $(25,954 $4,908   $260,252   $31,968   $931 
  

 

 

   

 

 

   

 

 

  

 

 

   

 

 

   

 

 

   

 

 

 

Total Controlled Affiliates

  $259,698   $21,600   $(25,954 $4,908   $260,252   $31,968   $931 
  

 

 

   

 

 

   

 

 

  

 

 

   

 

 

   

 

 

   

 

 

 

For the six months ended June 30, 2019 and year ended December 31, 2018, we did not recognize any realized gains(losses) on controlled affiliated investments. During the three months ended June 30, 2019 and year ended December 31, 2018, we recognized $0 and $0.9 million, respectively, of net realized gain distributions from TCW StrategicVentures.

Financial Condition, Liquidity and Capital Resources

On March 19, 2015 we completed the final private placement of Common Units. We generate cash from (1) drawing down capital in respect of CommonUnits, (2) cash flows from investments and operations and (3) borrowings from banks or other lenders.

Our primary use of cash is for(1) investments in portfolio companies and other investments to comply with certain portfolio diversification requirements, (2) the cost of operations (including expenses, management fees, incentive fees, and any indemnificationobligations), (3) debt service of any borrowings and (4) cash distributions to the Common Unitholders.

As of June 30, 2019 andDecember 31, 2018, aggregate Commitments, Undrawn Commitments and subscribed for Units of the Company are as follows (dollar amounts in thousands):

 

   June 30, 2019  December 31, 2018 

Commitments

  $2,013,470  $2,013,470 

Undrawn commitments

  $409,125  $409,125 

Percentage of commitments funded

   79.7  79.7

Units

   20,134,698   20,134,698 

Natixis Credit Agreement

We have a secured revolving credit agreement (the “Credit Agreement”) with Natixis, New York Branch (“Natixis”) as administrative agent andcommitted lender. The Credit Agreement provides for a revolving credit line of up to $750 million (the “Maximum Commitment”) (the “Credit Facility”), subject to the lesser of the “Borrowing Base” assets or theMaximum Commitment (the “Available Commitment”). The Borrowing Base assets generally equal the sum of (a) a percentage of certain eligible investments in a controlled account, (b) a percentage of unfunded commitments from certaineligible investors in the Company and (c) cash in a controlled account. The Credit Agreement is generally secured by the Borrowing Base assets.

OnApril 10, 2017, the Company and Natixis entered into a Third Amended and Restated Revolving Credit Agreement. Under the Third Amended and Restated Revolving Credit Agreement borrowings bear interest at a rate equal to either the(a) adjusted eurodollar rate calculated in a customary manner plus 2.35%, (b) commercial paper rate plus 2.35%, or (c) a base rate calculated in a customary manner (using the higher of the Federal Funds Rate plus 0.50%, the Prime Rate andthe Floating LIBOR Rate plus 1.00%) plus 1.35%.

 

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Moreover, the Credit Agreement’s stated maturity date was extended from November 10, 2017 toApril 10, 2020. The Credit Facility may be terminated, and any outstanding amounts thereunder may become due and payable, should the Company fail to satisfy certain covenants. As of June 30, 2019, we were in compliance with such covenants.

As of June 30, 2019 and December 31, 2018, the Available Commitment under the Third Amended and Restated Revolving Credit Agreement is$450 million and $500 million, respectively.

As of June 30, 2019 and December 31, 2018, the amounts outstanding under the CreditFacility were $315 million and $365 million, respectively. The carrying amount of the Credit Facility, which is categorized as Level 2 within the fair value hierarchy as of June 30, 2019 and December 31, 2018, approximatesits fair value. Valuation techniques and significant inputs used to determine fair value include Company details, credit, market and liquidity risk and events, financial health of the Company, place in the capital structure, interest rate and termsand conditions of the Credit Facility. The Company incurred financing costs of $10.1 million in connection with the April 10, 2017 Third Amended and Restated Revolving Credit Agreement. We recorded these costs as deferred financing costson our Consolidated Statements of Asset and Liabilities and are being amortized over the life of the Credit Facility. As of June 30, 2019 and December 31, 2018, $2.0 million and $3.3 million, respectively, of such prepaiddeferred financing costs had yet to be amortized.

The summary information regarding the Credit Facility for the three and six months ended June 30,2019 and 2018 is as follows (dollar amounts in thousands):

 

   Three Months Ended June 30,  Six Months Ended June 30, 
   2019  2018  2019  2018 

Credit facility interest expense

  $3,966  $2,976  $8,095  $6,747 

Undrawn commitment fees

   126   2,298   246   3,236 

Administrative fees

   16   17   32   33 

Amortization of deferred financing costs

   636   3,221   1,265   4,165 
  

 

 

  

 

 

  

 

 

  

 

 

 

Total

  $4,744  $8,512  $9,638  $14,181 
  

 

 

  

 

 

  

 

 

  

 

 

 

Weighted average interest rate

   4.82  4.35  4.85  4.19

Average outstanding balance

   325,549   270,560   331,906   320,392 

A summary of our contractual payment obligations as of June 30, 2019 and December 31, 2018 is as follows (dollaramounts in thousands):

 

Revolving Credit Agreement

  Total Facility
Commitment
   Borrowings
Outstanding
   Available
Amount(1)
 

Total Debt Obligations – June 30, 2019

  $750,000   $315,000   $135,000 

Total Debt Obligations – December 31, 2018

  $750,000   $365,000   $135,000 

 

(1)

The amount available considers any limitations related to the debt facility borrowing.

 

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The Company had the following unfunded commitments and unrealized losses by investment as of June 30, 2019and December 31, 2018 (dollar amounts in thousands):

 

       June 30, 2019   December 31, 2018 

Unfunded Commitments

  Maturity/
Expiration
   Amount   Unrealized
Losses
   Amount   Unrealized
Losses
 

Ascensus Specialties, LLC (fka Vertellus Performance Chemicals LLC)

   September 2022   $4,218   $—     $4,218   $8 

Carrier & Technology Solutions, LLC

   July 2023    2,270    —      2,656    —   

ENA Holding Corporation

   May 2021    —      —      1,601    45 

FQSR, LLC

   May 2023    4,566    18    4,566    73 

Help At Home, LLC

   August 2020    14,865    —      14,865    —   

Quicken Parent Corp.

   April 2021    862    34    862    43 

Ruby Tuesday, Inc.

   December 2022    4,575    —      4,575    —   
    

 

 

   

 

 

   

 

 

   

 

 

 

Total

    $31,356   $52   $33,343   $169 
    

 

 

   

 

 

   

 

 

   

 

 

 

The Company’s total capital commitment to its underlying investment in Strategic Ventures is $481,600. As ofJune 30, 2019 and December 31, 2018, the Company’s unfunded commitment to Strategic Ventures was $219,646.

 

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ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are subject to financial market risks, including changes in interest rates. At June 30, 2019, 99.7% of our debt investments bore interest based onfloating rates, such as LIBOR, EURIBOR, the Federal Funds Rate or the Prime Rate. The interest rates on such investments generally reset by reference to the current market index after one to six months. At June 30, 2019, the percentage of ourfloating rate debt investments that bore interest based on an interest rate floor was 0.0%. Floating rate investments subject to a floor generally reset by reference to the current market index after one to six months only if the index exceeds thefloor.

Interest rate sensitivity refers to the change in earnings that may result from changes in the level of interest rates. Because we fund a portionof our investments with borrowings, our net investment income is affected by the difference between the rate at which we invest and the rate at which we borrow. As a result, there can be no assurance that a significant change in market interestrates will not have a material adverse effect on our net investment income. We assess our portfolio companies periodically to determine whether such companies will be able to continue making interest payments in the event that interest ratesincrease. There can be no assurances that the portfolio companies will be able to meet their contractual obligations at any or all levels of increases in interest rates.

Based on our June 30, 2019 consolidated balance sheet, the following table shows the annual impact on net investment income (excluding the relatedincentive compensation impact) of base rate changes in interest rates (considering interest rate floors for variable rate instruments) assuming no changes in our investment and borrowing structure (dollar amounts in thousands):

 

Basis Point Change

  Interest Income   Interest Expense   Net Investment Income (Loss) 

Up 300 basis points

  $31,176   $9,581   $21,595 

Up 200 basis points

   20,784    6,388    14,396 

Up 100 basis points

   10,392    3,194    7,198 

Down 100 basis points

   (12,130   (3,357   (8,773

Down 200 basis points

   (1,255   (6,507   5,252 

Down 300 basis points

   (1,278   (7,729   6,451 

 

Item 4.

CONTROLS AND PROCEDURES

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, includingour President and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15 under the Securities Exchange Act of 1934).Based on that evaluation, our President and Chief Financial Officer have concluded that our current disclosure controls and procedures are effective in timely alerting them to material information relating to us that is required to be disclosed byus in the reports we file or submit under the Securities Exchange Act of 1934.

There have been no changes in our internal control over financialreporting that occurred during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

 

Item 1.

Legal Proceedings

We are not currently subject to any material legal proceedings, nor, to our knowledge, is any material legal proceeding threatened against us. From time totime, we may be a party to certain legal proceedings in the ordinary course of business, including proceedings relating to the enforcement of our rights under loans to or other contracts with our portfolio companies.

 

Item 1A.

Risk Factors

There have been no material changes from the risk factors previously disclosed in our Annual Report on Form 10-K.

 

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Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

Sales of unregistered securities

OnSeptember 19, 2014, the Company began accepting subscription agreements from investors for the private sale of its Common Units. The Company continued to enter into subscription agreements through the final closing date of March 19, 2015.Under the terms of the subscription agreements, the Company may generally draw down all or any portion of the undrawn commitment with respect to each Common Unit upon at least ten business days’ prior written notice to the Unitholders. Theissuance of the Common Units pursuant to these subscription agreements and any draw by the Company under the related Commitments is expected to be exempt from the registration requirements of the Securities Act of 1933, as amended, pursuant toSection 4(a)(2) thereof, and Rule 506(c) of Regulation D thereunder.

Issuer purchases of equity securities

None.

 

Item 3.

Defaults Upon Senior Securities

None.

 

Item 4.

Mine Safety Disclosures

None.

 

Item 5.

Other Information

None.

 

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Table of Contents
Item 6.

Exhibits.

(a) Exhibits

 

Exhibits   
  3.1  Certificate of Formation (incorporated by reference to Exhibit 3.1 to a registration on Form 10 filed on April 18, 2014)
  3.4  Second Amended and Restated Limited Liability Company Agreement, dated September 19, 2014 (incorporated by reference to Exhibit 3.4 to a filing on Form 10-Q filed on November 7, 2014)
10.1  Investment Advisory and Management Agreement (incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed on September 25, 2014).
10.2  Administration Agreement dated September 15, 2014, by and between TCW Direct Lending LLC and TCW Asset Management Company (incorporated by reference to Exhibit 10.2 to the registrant’s Quarterly Report on Form 10-Q filed on November 7, 2014).
10.6  Final form of the TCW Direct Lending Strategic Ventures LLC Amended and Restated Limited Liability Company Agreement, dated June 5, 2015 (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on June 10, 2015).
10.8  Third Amended and Restated Revolving Credit Agreement, dated April 10, 2017, by and among TCW Direct Lending LLC, as borrower, Natixis, New York Branch, as administrative agent, sole lead arranger and sole book manager, and the lenders party thereto (incorporated by reference to Exhibit 10.1 to the Current Report on Form8-K filed on April 14, 2017).
31.1*  Certification of President Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934
31.2*  Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934
32.1*  Certification of President Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350)
32.2*  Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350)
99.1*  Financial Statements of TCW Direct Lending Strategic Ventures LLC for the three and six months ended June 30, 2019 and 2018

 

*

Filed herewith

 

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Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, theregistrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

  TCW DIRECT LENDING LLC
Date: August 12, 2019  By: /s/ Richard T. Miller
   Richard T. Miller
   President
Date: August 12, 2019  By: /s/ James G. Krause
   James G. Krause
   Chief Financial Officer

 

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